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Author: 


Mcintosh,  Robert  James 


Title: 


Reference  book  of 
accounts  for... 

Place: 

Toledo 

Date: 

[1914] 


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Mcintosh,  Robert  James,  1871- 

Eef erence  book  of  accounts  for  manufacturing  and  mer- 
cantile companies,  by  Robert  J.  Mcintosh  ...  Toledo,  0., 
R.  J.  Mcintosh  and  company  ["^1914]    2d  ed* 

299,  [li  p.  incl.  forms  (part  fold.)    23i~.     .  $3.50. 


1.  Accounting.        i.  Title. 
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BIBLIOGRAPHIC  IRREGULARITIES 

MAIN  ENTRY:    Mcintosh.  Robert  James 

Reference  book  of  accounts  for, 


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REFERENCE  BOOK  OF  ACCOUNTS 


FOR 


i 

i 


MANUFACTURING 


AND 


MERCANTILE  COMPANIES 


BY 

ROBERT  J.  McINTOSH 

CERTIFIED  PUBUC  ACCOUNTANT 
Fellow  of  the  American  Association  of  Public  Accountants 


Published  by 

ROBERT  J.  McINTOSH  AND  COMPANY 

Accountants  and  Systematizers 

Toledo,  Ohio 


' 


COPYRIGHT  1914 

BY 

ROBERT  J.  McINTOSH 


: 


H 
1 


CONTENTS 


PART  1 

Order  of  Arrangement  of  Accounts 

PART  2 
Accounts  for  Manufacturing  Companies 

PART  3 
Accounts  for  Mercantile  Companies 

PART  4 
Principles  of  Cost  Accounting 

PART  5 
Opening  Elntries 

PART  6 

Financial  Statements 

PART  7 
Accountmg  Forms 


293791 


WPIPiliilMI 


tl 


V 


INTRODUCTION. 


This  book  is  prepared  as  a  work  of  reference  to  aid  the 
bookkeeper  in  handling  the  accounts  specially  for  Manu- 
facturing and  Mercantile  Companies,  according  to  modem 
practice,  and  to  present  accounting  principles  applicable  to 
business  in  general. 

It  is  also  prepared  as  a  reference  book  to  be  used  in 
conjunction  with  a  course  in  advanced  accounting  pre- 
pared by  the  author. 

Special  attention  is  given  to  the  preparation  of  finan- 
cial statements,  opening  and  closing  entries  and  to  the 
details  of  accounting  for  individuals,  partnerships  and  cor- 
porations. 

It  having  been  the  aim  to  furnish  this  information  in  a 
condensed  and  practical  manner,  certain  subjects  have 
necessarily  been  only  briefly  presented. 

ROBERT  J.  McINTOSH. 

Toledo,  Ohio,  June  29,  1914. 


■■■■ 


MiP 


PART  1 


ORDER  OF  ARRANGEMENT 
OF  ACCOUNTS 


Ml 


ORDER  OF  ARRANGEMENT  OF  ACCOUNTS. 

In  every  business  conducted  for  profit  a  knowledge  of 
two  things  above  all  others  is  essential,  viz :  the  net  worth 
of  the  business  and  the  net  profits  or  losses  from  operation. 

1.  The  net  worth  of  a  business  is  the  amount  which 
the  assets  exceed  the  liabilities,  detailed  in  the  form  of  a 
statement  termed  a  "Balance  Sheet". 

2.  The  net  profit  or  loss  from  the  operation  of  a  busi- 
ness is  the  amount  which  the  revenues  exceed  the  expenses 
or  vice  versa,  the  details  of  which  are  shown  in  the  form 
of  a  statement  termed  a  "Profit  and  Loss  Statement". 


3.  Balance  Sheet. 

A  balance  sheet  is  generally  understood  to  be  a  state- 
ment of  account  balances  or  book  values  of  assets  and 
liabilities  of  a  ledger.  Book  values  are  not  always  true 
values,  therefore  a  balance  sheet  is  not  always  a  true  state- 
ment of  assets  and  liabilities,  although  it  may  be  mathe- 
matically correct. 

4.  The  term  "balance  sheet"  is  not  synonymous  with 
the  term  "trial  balance",  the  latter  being  a  list  of  the  bal- 
ances of  all  open  accounts  of  a  ledger  kept  by  double  entry. 
The  object  of  a  trial  balance  is  to  prove  that  all  debit 
entries  made  in  posting  mediums  have  been  posted  to  the 
debit  side  of  the  ledger  in  the  right  amount,  and  that  all 


] 


S-7 


ARRANGEMENT    OF    ACCOUNTS 


credit  entries  have  been  posted  to  the  credit  side  of  the 
ledger  in  right  amount;  to  prove  the  footings  in  both  the 
ledger  and  books  of  original  entry;  and  to  furnish  in  con- 
cise form,  the  data  from  which  the  balance  sheet  and  profit 
and  loss  statement  may  be  prepared.  The  books  are  under- 
stood to  be  in  balance  when  the  sum  of  the  debits  equals 
the  sum  of  the  credits,  but  a  trial  balance  may  be  obtained 
and  still  errors  may  exist  in  posting  to  the  wrong  account 
as  well  as  errors  in  the  books  of  original  entry. 

5.  Arrangement  of  Accounts  of  the  Balance  Sheet. 

The  accounts  of  the  balance  sheet  are  properiy  ar- 
ranged and  classified  according  to  one  of  the  two  follow- 
ing forms :    (see  353,  354.) 

6.  First  Form  of  Arrangement. 

7.  Assets. 

Generally  speaking,  these  are  the  things  owned  by  a 
corporation,  partnership  or  individual  which  may  be  con- 
verted into  money  or  value. 

(a)  Current  or  Quick  Assets  in  the  order  of  their 
availability. 

These  are  assets  which  are  readily  realized  upon,  such 
as  cash,  notes  and  accounts  receivable,  raw  and  finished 
material,  securities,  etc. 

(b)  Deferred  Charges  to  Operation,  or  prepaid 
items,  in  the  order  of  their  importance. 

These  consist  of  expense  inventories  or  balances  car- 
ried as  assets  at  closing  periods  to  be  absorbed  in  subse- 
quent periods  of  operation,  such  as  insurance  premiums 
and  interest  paid  in  advance,  advertising,  stationery,  print- 

10 


i 


i 
( 


f 


BALANCE  SHEET 


7-8 


ing  and  office  supplies,  etc.  Although  this  class  of  assets 
is  of  value  only  to  the  going  concern,  they  should  be  taken 
into  account  on  the  balance  sheet  in  order  to  show  the 
results  from  operations  in  the  period  in  which  they  belong. 

(c)  Fixed  or  Permanent  Assets  in  the  order  of  their 
importance. 

These  consist  of  assets  of  a  permanent  nature,  con- 
stituting the  equipment  for  conducting  the  business,  such 
as  real  estate,  buildings,  machinery,  fixtures,  etc. 

(d)  Intangible  or  Nominal  Assets  in  the  order  of 
.  their  importance. 

These  are  assets  which  are  uncertain  of  realization  or 
proportion  of  realization,  such  as  patents,  copyrights,  good 
will,  etc.  They  are  virtually  assets  in  name  only  and  have 
a  value  only  as  related  to  the  going  concern. 

8.     Liabilities. 

These  consist  of  the  debts  or  obHgations  of  a  corpora- 
tion, partnership  or  individual. 

(a)  Current  or  Floating  Liabilities  in  the  order  in 
which  they  would  be  paid  in  case  of  liquidation. 

These  are  liabilities  constituting  the  general  indebted- 
ness resulting  from  the  ordinary  operation  of  a  business, 
such  as  notes  payable,  accounts  payable  and  pay  rolls, 
together  with  accrued  items  payable  consisting  of  unpaid 
expense  items  which  have  accumulated  to  a  certain  date, 
such  as  accrued  interest,  taxes,  commissions,  etc. 

(b)  Fixed  Liabilities  in  the  order  of  their  amounts. 
These  are  obligations  of  long  time  nature,  such  as 

mortgages,  mortgage  bonds,  etc. 

II 


i 


9-13 


ARRANGEMENT    OF    ACCOUNTS 


PROFIT  AND  LOSS  STATEMENT 


14-15 


9.  Net  Worth. 

This  is  the  excess  of  all  assets  over  all  liabilities.  (A 
corporation's  own  stock  is  not  to  be  included  among  the 
liabihties).  It  is  represented  by  the  sum  of  the  paid-up 
or  issued  capital  stock  and  the  surplus,  or  less  the  impair- 
ment at  closing  periods,  in  a  corporation ;  by  the  partners' 
or  proprietor's  individual  investment  or  capital  accounts 
and  the  undivided  profits  or  less  the  profit  and  loss  deficit, 
if  the  business  is  conducted  as  a  partnership  or  by  an  indi- 
vidual respectively. 

10.  Second  Form  of  Arrangement. 

11.  Assets. 

(a)  Fixed  or  Permanent  Assets  in  the  order  of  their 
importance. 

(b)  Intangible  Assets  in  order  of  their  amounts. 

(c)  Deferred  Charges  to  Operation  in  order  of  their 
importance. 

(d)  Current  or  Quick  Assets  in  the  reverse  order  of 
their  availability. 

12.  Liabilities  and  Net  Worth. 

(a)  Capital  Stock. 

(b)  Fixed  Liabilities  in  the  order  of  their  amounts. 

(c)  Current  or  Floating  Liabilities  in  the  order  in 
which  they  would  be  paid  in  case  of  liquidation. 

(d)  Surplus  or  Deficit. 

13.  Although  either  form  afore  shown  is  considered 
correct  by  professional  accountants,  the  first  order  of 
arrangement  will  be  followed  in  the  charts  of  accounts 
herein  presented  as   it   is   the   form   which  is   generally 


preferred  by  credit  men  and  bankers,  owing  to  the  fact 
that  it  sets  forth,  first,  the  net  available  assets  or  work- 
ing capital  of  a  business,  which  constitute  the  basis  for 
extending  credit  and  granting  loans. 

14.  Profit  and  Loss  Statement  (see  344,  347,  356, 

358). 

A  profit  and  loss  statement  for  a  manufacturing  or 

mercantile   business,    briefly,   is    an   analytical   statement 

showing  in  logical  order  the  results  from  the  operations 

of  the  business  covering  a  given  period. 

15.  The  distinction  between  the  terms  Profit  and  Loss 
Statement  and  Statement  of  Income  and  Expenditure  on  the 
one  hand,  and  Statement  of  Receipts  and  Disbursements  on 
the  other  should  be  noted  as  follows:  The  former  are 
applied  to  statements  showing  the  results  from  operation, 
including  all  profits  or  income  and  all  expenses  applicable 
to  a  given  period,  whether  actually  paid  or  accrued,  while 
a  "Statement  of  Receipts  and  Disbursements"  is  under- 
stood to  mean  a  statement  of  cash  actually  received  and 
actually  disbursed. 

The  elements  constituting  the  profit  and  loss  state- 
ment should  be  arranged  in  the  following  order: 

(a)  Gross  Sales. 

(b)  Deduct  Sales  Returned. 

(c)  Net  Sales. 

(d)  Deduct  Cost  of  Sales.    (See  260,  344,  356.) 

(e)  Gross  Profit  or  Gross  Revenues  from  Sales. 
This  is  the  excess  of  the  net  sales  over  the  net  cost  of 


sales. 


(f)     Deduct  Commercial  Expenses. 

Expenses,  generally   speaking,  may  be  divided  into 


12 


13 


15 


ARRANGEMENT    OF    ACCOUNTS 


> 


two  main  groups,  viz :  Manufacturing  and  Commercial. 

Manufacturing  Expenses  include  only  those  expenses 
relating  to  the  factory  end  of  the  business,  and  constitute  a 
part  of  the  cost  of  production.     (See  136). 

Commercial  Expenses  include  those  expenses  relating 
to  the  administrative  and  selling  end  of  a  business  and 
may  be  classified  according  to  these  two  divisions.  (See 
196  and  222). 

(g)     Net  Profits  from  Operation. 

This  consists  of  the  excess  of  the  gross  profits  over  the 
administrative  and  selling  expenses. 

(h)  Add  Other  Revenues  and  Deduct  Other  Ex- 
penses. 

Other  Revenues  include  such  items  as  cash  discounts 
earned,  interest  earned  on  items  receivable,  and  revenues 
from  outside  investments.  Other  Expenses  include  such 
items  as  cash  discounts  allowed  others,  interest  on  bonded 
and  floating  indebtedness. 

(i)     Net  Profits  from  all  Sources. 

These  consist  of  the  net  profits  from  operation 
increased  by  other  revenues  and  decreased  by  other 
expenses. 

The  foregoing  remarks  regarding  the  order  of  arrange- 
ment of  the  accounts  of  the  Balance  Sheet  and  Profit  and 
Loss  Statement  are  summed  up  in  concise  form  in  the 
diagram  shown  on  the  following  page: 


it« 


BH 


BALANCE 
SHEET 


THE 
i6.    BUSINESS 
EXHIBIT 


PROFIT 

AND   LOSS 

STATEMENT 


1 


ASSETS 


LIABILITIES 

AND 
NET  WORTH 


REVENUES 


DIRECT 
COSTS 


GROSS  PROFITS 
FROM   SALES 


INDIRECT 
COSTS  OR 
EXPENSES 


''Current 
or  Quick 

Deferred 
Charges  to 
Operation 

Fixed 

or 
Permanent 


I  Cash,  Notes    and    Accounts    Receivable,    Merchandise    Inven- 
(tories,  Securities  and  other  changeable  or  floating  assets. 

rStationery,   Printing  and   Office  Supplies,  Interest  and  Insur- 

<  ance  paid  in  advance. 

TGrounds,  Buildings,  Machinery,  Tools,  Patterns  and  Drawings, 

<  Office   Furniture  and   Fixtures,  and  other  fixed   or  permanent 
[assets. 


Intangible         \  Patents,  Copyrights,  Good  Will,  etc. 


Current  or 
Floating 


{  Notes  and  x\ccounts  Payable,  Accrued  Items,  and  other  change- 
I  able  or  floating  liabilities. 


Fixed  \  Mortgages  and  Bonds  Payable  relating  to  the  fixed  assets. 


Net  Worth 


I  Net  Sales 


rif  a  corporation — Capital  Stock,  Undivided  Profits  or  Surplus. 
•I  If  not  incorporated — Investment  or  Capital  Accounts  of  part- 
Lners  or  individuals  together  with  Undivided  Profits. 


\  Gross  Sales  less  Returned  Sales. 


Manufacturing 
Business 


Direct  f  Direct  Material. 

Charges       (  Direct  Labor. 

(^Manufacturing   Expenses — as   Salaries   of  Superin- 
Indirect      J  tendents   and   Foremen,   and   other   indirect   labor, 


Charges       ]  Maintenance,     Depreciation    and    other    expenses 
^  incidental  to  the  production  of  the  product. 

Mercantile        J  Purchase  price  of  Merchandise  together  with  Incoming  Trans- 
Business  jportation  Charges. 

r  The  excess  of  the  net  sales  over  the  net  cost  of 
I  goods  sold. 

'Salaries  of  Executitve  Officers,  Office  Employees,  Office  Ex- 
pense, and  other  expenses  incidental  to  the  management  of 
the  business. 


Administrative^ 


Selling 


rSalaries  and  Expenses  of  Salesmen,  Commissions,  Advertising 
<  and  other  expenses  incidental  to  the  selling  end  of  the  busi- 
Iness. 


NET  PROFITS  FROM  f  The  excess  of  the  gross  profits  over  the  sum  of  the  administrative  and  selling 
OPERATION  i  expenses. 

f  Discounts  Earned,  Interest  Earned    and    other    miscellaneous    revenues    from 
OTHER    REVENUES  |  outside  investments. 

OTHER  EXPENSES   (  Discounts  Allowed,  Interest  on  Items  Payable. 

NET  PROFITS  FROM  f  The  sum  of  the  net  profits  from  operation,  increased  by  other  revenues  and 
ALL   SOURCES        (  decreased  by  other  expenses. 


15 


*  • 


•  •• 


•  • 


CHART  OF  ACCOUNTS 


17-18 


17.     Chart  of  Accounts. 

The  first  step  in  the  installation  of  an  accounting  sys- 
tem is  an  analysis  of  the  requirements  of  the  business  from 
an  accounting  viewpoint,  and  the  preparation  of  a  working 
plan.  This  working  plan  will  be  termed  a  "Chart  of 
Accounts",  examples  of  which  are  found  in  26  and  248. 

These  Charts  of  Accounts  are  presented  to  illustrate 
and  to  furnish  suggestions  as  to  the  general  order  of 
arrangement  in  which  the  accounts  should  appear  in  the 
Balance  Sheet  and  Profit  and  Loss  Statement,  and  also 
to  furnish  a  list  from  which  accounts  applicable  to  a 
specific  business  may  be  selected.  It  is  not  expected  that 
all  of  the  accounts  Hsted  will  be  used  in  any  one  business, 
neither  is  it  intended  that  the  charts  include  all  accounts 
which  may  be  required  in  every  business.  Large  con- 
cerns require  a  finer  analysis  of  operating  results  than 
small  ones,  and  when  fifty  accounts  may  be  considered 
proper  for  the  former,  one-half  of  that  number  may  be 
adequate  for  the  latter.  Also  in  many  mercantile  busi- 
nesses it  may  not  be  desirable  to  group  the  Administra- 
tive and  Selling  Expenses  separately  but  to  show  them  all 
under  the  one  general  heading,  "Commercial  Expenses," 
which,  in  closing,  should  be  treated  in  a  similar  manner 
as  described  for  Administrative  or  Selling  Expenses. 

18.     Numbering  Accounts. 

In  these  charts  each  account  is  given  a  permanent 
number  in  order  to  facilitate  the  performance  of  the  daily 
work  in  summarizing  costs,  expenses  and  other  results, 
and  to  give  each  account  a  certain  fixed  position  as 
related  to  other  accounts. 


17 


19-21 


ARRANGEMENT    OF    ACCOUNTS 


ig.     Classification  of  General  Ledger  Accounts. 

Some  systematic  order  of  arrangement  of  ledger  ac- 
counts should  be  adopted;  therefore,  in  order  to  facilitate 
the  preparation  of  Balance  Sheets  and  Profit  and  Loss 
Statements,  the  accounts  of  the  General  Ledger  will  be 
classified  in  the  order  that  they  should  appear  on  these 
statements.  The  asset  accounts  should  be  shown  first,  in 
their  logical  order,  followed  by  the  liabilities,  revenues 
and  expenses;  each  group  of  accounts  being  designated 
by  an  index  tab,  as  "Assets,"  "Liabilities,"  "Profit  and 
Loss  Revenues,"  "Profit  and  Loss  Costs,"  "Expenses," 
"Sundry  Debtors  and  Creditors." 

20.  General  or  Private  Ledger. 

This  is  a  ledger  usually  containing  all  accounts  relat- 
ing to  the  business  except  individual  accounts  with  cus- 
tomers and  purchase  creditors,  with  which  controlling 
accounts  only  are  carried  in  the  general  ledger.  The  gen- 
eral ledger  accounts,  together  with  the  accounts  receiv- 
able and  accounts  payable,  when  few  in  number,  may  all 
be  carried  in  the  same  book  or  binder,  each  class  of 
accounts  being  separated  by  an  index  tab  marked  "Gen- 
eral Ledger,"  "Accounts  Receivable"  and  "Accounts 
Payable"  respectively,  the  general  ledger  accounts  being 
shown  first,  followed  by  the  accounts  receivable  second, 
and  the  accounts  payable,  third. 

21.  Factory  Ledger. 

When  a  cost  system  is  in  operation,  all  accounts  relat- 
ing to  the  operation  of  the  factory  may  be  advantageously 
carried  in  a  factory  ledger,  in  which  event  a  controlling 

i8 


CONTROLLING  ACCOUNTS 


22-23 


account  with  the  factory  ledger  should  be  carried  in  the 
general  ledger,  and  accordingly  a  controlling  account 
with  the  general  ledger  carried  in  the  factory  ledger.  For 
further  details  see  302. 

22.  Expense  Analysis  Record. 

Instead  of  carrying  detailed  expense  accounts  in  the 
ledger,  an  account  with  each  general  subdivision  of  ex- 
penses may  be  carried,  for  example,  with  Manufacturing, 
Administrative  and  Selling  Expenses  supported  by  an 
expense  analysis  record  showing  the  detailed  expense 
accounts.  This  book  should  be  ruled  with  fourteen  col- 
umns with  headings  showing  name  of  account,  name  of 
each  month,  and  total,  thus  showing  the  comparative 
monthly  expenses  and  total  for  the  year. 

The  method  of  handling  expense  accounts  depends, 
of  course,  upon  conditions  in  each  case. 

■r 

23.  Controlling  Accounts. 

A  controlling  account  is  a  summary  account,  repre- 
senting or  controlling  a  certain  class  or  group  of  indi- 
vidual accounts.  For  example,  the  "accounts  receivable 
controlling  account"  represents  and  controls  the  indi- 
vidual accounts  with  customers,  and  the  "accounts  pay- 
able controlling  account"  controls  the  individual  accounts 
with  purchase  creditors,  and  should  always  agree  in 
amount  with  the  aggregate  of  the  balances  of  the  indi- 
vidual accounts  of  the  respective  ledgers,  illustrated  as 
follows : 

19 


II 


I 


24-25  ARRANGEMENT   OF    ACCOUNTS 

24.    Accounts  Receivable  Controlling  Account. 

Debit         Credit      Balance 

Balance   at   the    beginning    of   a    given ,000000 

month $30,000.00  30,000.00 

Debit  from  the  customers'  charge  sum- 
mary or  sales  book,  the  total  charges 
for  the  month 20,000.00 

Debit  from  the  cash  book  the  total  re- 
funds to  customers  with  whom  ac- 
counts are  carried 300.00 

Credit  from  the  cash  book  the  total 
collections  from  customers  for  the 
month 17.000.00 

Credit  from  the  journal  or  credit  mem- 
orandum summary  the  total  allow- 
ances to  customers  for  the  month..  ^SO.oo ^ 

Results  at  close  of  the  month $50,300.00    17,250.00    33.050.00 

The  monthly  totals  are  obtained  by  providing  in  the 
various  posting  mediums,  such  as  cash  book,  journal,  etc., 
special  columns  into  which  are  entered  all  items  which  are 
to  be  individually  posted  to  the  various  customers' 
accounts;  the  totals  only  of  these  special  columns  to  be 
posted  to  the  controlHng  account  at  the  close  of  the 
month.  (See  360,  409,  Accounting  Forms).  It  therefore 
follows  that  if  all  individual  postings  have  been  correctly 
made,  that  the  aggregate  of  the  customers'  accounts 
should  agree  with  the  controlling  account. 

25.    The  advantages  of  controlling  accounts,  briefly 

stated,  are  as  follows: 

First:  A  trial  balance  of  the  general  ledger  may  be 
taken  and  a  financial  statement  prepared  before  finishing 
the  posting  of  other  ledgers,  or  waiting  to  prove  them. 

Second:  They  enable  the  head  bookkeeper  to  know 
what  the  totals  of  other  ledgers  should  be  before  postings 
are  completed,  and  whether  the  balances  submitted  to 
him  by  ledger  keepers  are  correct  or  not. 

20 


CONTROLLING  ACCOUNTS 


25 


Third:  They  greatly  facilitate  getting  the  trial  bal- 
ance by  localizing  errors.  For  example,  if  the  general 
ledger  and  accounts  payable  each  are  in  balance  and  the 
accounts  receivable  are  out  of  balance,  it  is  necessary  to 
look  for  the  error  among  the  accounts  receivable  items 
only,  thus  saving  the  time  in  going  over  those  accounts 
which  are  known  to  be  in  balance. 


21 


PART  2 


ACCOUNTS 
FOR  MANUFACTURING  COMPANIES 


\ 


1 


i 


I 


It ' 


26.  CHART  OF  ACCOUNTS 

FOR  MANUFACTURING  COMPANIES 

(See  17) 

ASSETS* 
Acct.  No.  Rcf.  No. 

Current  Assets   7 

I — Imprest    Cash   Fund 2^ 

2 — 'Cashier's  Change   28 

3 — Cash  on  hand  Undeposited 29 

4 — Cash  in   Banks 30 

5— 

Q— 

7 — Stocks  and  Bonds  of  Other  Companies 32 

9— Mortgages   Receivable 33 

10 — 

1 1 — Notes  Receivable   34 

12 — Notes  Receivable  Discounted    35 

13 — Reserve  for  Doubtful  Notes 36 

14 — Accrued  Interest  on  Items  Receivable 37 

IS— 

16 — 

17 — Accounts   Receivable — Customers    38 

18 — Reserve  for  Doubtful  Accounts — Customers 39 

19 — Accounts   Receivable — Sundry  Debtors 40 

20 — Reserve  for  Doubtful  Accounts — Sundry  Debtors 41 

21 — 

23 — Consignments  to  Others 42 

24 — 

25 — Inventories  of  Merchandise — Branches 43 

26 — Inventory  of  Manufacturing  Material  or  Stores 44 

27 — Inventory  of  Semi-Finished  Product  or  Stores 45 

28 — Inventory  of  Finished  Product  or  Stores 46 

29 — Inventory  of  Work  in   Process 47 

30 — Reserve   for    Depreciation    of   Manufacturing   Material 

and  Work  in  Process 48 

31 — Undistributed   Manufacturing  Overhead 49 

•Note.  Reserve  accounts  are  here  listed  among  the  Assets,  owing 
to  the  fact  that  they  are  shown  on  the  balance  sheet  as  a  deduction  Xrom 
the  accounts  to  which  they  relate. 

25 


CHART  OF  ACCOUNTS 


26 


I 

I- 


hi 


li 


25  MANUFACTURING  COMPANIES 

Rcf .  No. 
Acct.  No.  CO 

32— Treasury  Stock,  Preferred    ^^ 

33_Treasury  Stock,  Common    ^^ 

^'^'"tltS"cco°r°nTtf  °"e  Vequirements  of  the  business        ^ 
Fixed  Assets   * ' " ' ' 63 

tures 66 

40 — Power   Plant    •  •  •. ii'"''  pianV 60-61 

tbl^Reserve  for  Depreciation-Power  Plant 

Tools ...       68 

S3— Factory  Fixtures •  •  ••••••  ^u:.;^" "  ■"' 60-61 

54-Reserve  for  Depreciation-Factory  Fixtures 

si-Perishable   Tools    -[^     /. 

^^  

56— 

57— •••: ;•• 71 

Si^Stable   Equipment o^oKI^  Fmimment         60-61 

59-^Reserve  for  Depreciation-Stable  Equipment ^^ 

t=^:^^^^^^^^  '^^^^ '""t 

^=^:^-fo;Depr^ciaiion-Patterns:::::::: •;       74 

^Zg:::^^;  DepVeciaiion-D^ings: : : 74 

^Fa'cto^y  Office  Furniture  and  Fixtures  .^^^. .  7. 

67— Reserve    for    Depreciation— Factory    umce  ^^^^ 

and  Fixtures  

^ :::::::::::::::::;'••••■••'•■••■••■•••••• 

tive  Department  •_;. 77 

Fixtures V  W' '/./.-'o'c  ..       7^ 

Fixtures  ;;; 

77- ; ::;::: 

7&- 

79— ;:::: > 

80— ; 79 

giu^Sinking   Fund    80 

82_Other   Investments    

83- :::: 

84- 7 

Intangible   Assets    81 

85_Patents     

26 


Acct  No.  ^«'-  ^^ 

86— Good   Will    |2 

87 — Organization  Expense    o3 

88— 

89— 

LIABILITIES. 

Current  Liabilities  ^ 

loi — Notes  Payable — Loans °4 

102— Notes  Payable— Purchase    Creditors    ©5 

103— Accounts  Payable— Purchase    Creditors    86 

104— Accounts  Payable— 'Sundry    Creditors    87 

los— 

106 — 

108— Accrued   Pay   Rolls o5 

109 — Accrued   Commissions ^9 

no Other  Accrued   Items   Payable    (Itemize   according  to 

the  requirements  of  the  business) 90 

Fixed  Liabilities  ° 

J 17 — Mortgages    Payable    9^ 

1 18 — Bonds   Payable 93 

1 19 — 

CAPITAL  OR  NET  WORTH  9 

120— Capital  Stock,  Preferred— Authorized    95 

121— Capital  Stock,  Preferred— Unissued.     (This  account  is 
listed   here   to    be    shown    as    a    deduction    from 

Authorized  Preferred  Capital  Stock) 97 

122— Capital  Stock,  Common— Authorized. •       96 

123 — Capital  Stock,  Common)— Unissued.     (This    account    is 
listed    here    to    be    shown    as    a    deduction    from 

Authorized  Common  Capital   Stock) 98 

124 — Subscribed   Capital  Stock 99 

125 — Subscriptions  to  Capital  Stock •  •     100  - 

(This  account  to  be  shown  on  balance  sheet  as  a  deduction  from 
subscribed  Capital  Stock,  the  difference  being  the  amount  advanced 
by  subscribers  for  stock  sold  on  the  instalment  plan.) 

(If  not  incorporated,  each  partner's  Capital  or  Invest- 
ment Account  is  to  be  shown  here  in  place  of  the 

Capital  Stock  Accounts) 101-103 

126— Cumulative    Dividends— Preferred    Stock los 

127 — Dividends — ^Common  Stock    106 

128 — Reserve  for  Sinking  Fund 108 

1 2^—— *** 

130 — Reserve  for  Working  Capital  (When  stock  is  donated 

to   company)    109 

131 — Surplus ^  ^^^ 

i32^Profit  and   Loss ^^^ 

PROFIT  AND  LOSS  REVENUES. 

141— Sales— Finished  Product   (To  be  subdivided  according 

to   requirements)"    112 

27 


ii 


26  MANUFACTURING  COMPANIES 

Ref.No. 
Acct.No. 

142— Sales  of  Semi-Finished   Product    "4 

143— Sales  of  Manufacturing   Material    JJ^ 

144 — Sales  of  Scrap 

145— 

146— 

147— 

14&— ::; 

149— Sales   of   Miscellaneous • ^ J^ 

150— Cash  Sales    •••••• ;     ng 

i5i_Revenues  of  Branches ^^ 

152— Rents   Earned    • 

i53_Cash  Discounts  Earned ^^^ 

154— Interest  Earned    

155— * 

156— ;;; 

i57_Miscellaneous  Earnings  ■» 

PROFIT  AND  LOSS  COSTS. 
171— Manufacturing  Material  Purchases 124 

l73-Manukctur?ng  Expenses  (dve^^^        or  Burden) 126 

i74H-Cost  of  Product  Manufactured '^7 

i75_Consigned    Merchandise    

i7'6— Cost  of  Sales ^ 

177— Administrative  Expenses ^^^ 

178— Selling  Expenses    •  •  • ^ 

179— Cash  Discounts  Allowed  Others J^;f 

180— Interest  on  Items  Payable ^'J 

181— Extinguishment   of  Patents. •  • ^^ 

182— Extinguishment  of  Organization  Expenses i35 

MANUFACTURING  EXPENSES  136 

Executive  and  Preparatory.     ,  ,  _.  j^j 

201— Salaries  of  Superintendents  and  Foremen i37 

202— Salaries  of  Designers  and  Draftsmen 130 

203— Salaries  of  Factory  Accounting   Employees I39 

204— Salaries  of  Storekeepers    ^ 

205— Salaries  of  Patternmakers    •  •  •  •  *  "^^ 

206 * 

•  ••••••••***  ••• 

207 — 

208 

Indirect  Labor.  ^  ^     ,    _  _  ,                                                          . .     142 
209h-Wages  of  Tool    Makers    "^ 

2i(>— Wages  of  Inspectors    ;  'wmi"  '  ■ '  11 taa 

fi?IIWaies  of  Carpenters,  Painters  and  Millwrights 44 

212— Wages  of  Truckers. ^g 

213— Wages  of  Sweepers  and  Cleaners J4" 

214— Miscellaneous  Indirect  Labor ^4/ 

215— 

216- ^ 

217^ ' 

28 


i 


CHART  OF  ACCOUNTS  ^6 

Acct.  No. 

Heat,  Light  and  Power.  « 

218— Heat,  Light  and  Power,  Labor J4o 

219— Heat,  Light  and  Power,  Fuel J49 

220— Heat,  Light  and  Power,  Electric  Current   JSo 

221 — Heat,  Light  and  Power,  Gas *5i 

222— Heat,  Light  and  Power,  Supplies    ^52 

223 — 

224— •  • .• ::; 

225— Heat,  Light  and   Power,  Proportion   i53 

Maintenance  \\^ 

226— Repairs  to  Grounds •.;:.••  •;,•. tta 

227^-Repairs  to  Buildings  and  Building  Fixtures 150 

228— Repairs  to  Power  Plant JSZ 

229 Repairs  to  Machinery  and  Machine  Tools 150 

230— Repairs  to  Factory  Fixtures   •':'''•••■'. \^ 

231— Repairs  and  Replacements  Perishable  Tools 100 

232— Repairs  to  Patterns    ; '  ;-•'  1 IaI 

233— Repairs  to  Factory  Office  Furniture  and  Fixtures 162 

234— 

235— 

Stable  Expenses.  , 

236— Wages  of  Drivers J"^ 

237_Stable  Supplies  and  Expenses J04 

238— Feed    and    Bedding J?5 

230— Repairs  to  Stable  Equipment  ..••••• 'r^u""\"'  ]^ 

2^Depreciation— Stable   Equipment   (Reserve   Charge)...  167 

241— Insurance— Fire  and  Liability J0° 

242— Stable   Expense— Proportion J09 

243 — Wages  of  Chauffeurs ^'O 

Automobiles— Factory . 

244— Automobile  Supplies  and  Expense ^7^ 

245— Repairs  to  Automobiles,   Factory...... ^^V*--;  Hz 

246— Depreciation— Automobiles,  Factory  (Reserve  Charge)  I73 

247— Insurance— Fire  and  Liability,  Automobiles I74 

248— Automobile   Expense— Factory   Proportion I75 

General.  ^ 

249— Rent— Factory  Proportion    J/o 

250— Taxes  on  Plant  and  Stock J/7 

251— Insurance,  Fire— Plant  and  Stock i70 

252— Insurance,    Liability— General    Factory I79 

253— Factory  Supplies  Used    J°^ 

254— Oil,  Waste  and  Packing ^^\ 

255-Water ]°l 

256— Experimental  Work    ^°^ 

257— Lost  Time    •• • ]J* 

258— Material  Spoiled  or  Scrapped i^S 

259_Replacement  of  Defective  Material loo 

260— Repairs  to  Factory  Stock... v;  J- V  MTJ laa 

261— Incoming  Transportation   Charges— Undistributed i»» 

262— Telephone  and  Telegraph ;.•'••  u ^1? 

263— Stationery,  Printing  and  Office  Supplies— Factory 190 

264— Drafting   Supplies    ^^^ 

29 


II  ( 


^ 


''•f 


11.1 1 


26 


MANUFACTURING  COMPANIES 


Acct.  No. 

265 — Miscellaneous   Manufacturing   Expense 
266— 


Ref.  No. 

192 


193 
194 


267— 

268— 

269 — Depreciation  Expense  (Reserve  Charge)   (This  account 

may  be  subdivided  according  to  plant  accounts) . . . 

270 — Administrative  Expenses — Manufacturing  Proportion.. 

a — Salaries  of  Executive  Officers. 

b — Salaries  of  Main  Office  Employees. 

c — Postage. 

d — Legal  Expense. 

e — Telephone  and  Telegraph. 

f — Stationery  and  Printing. 

g — Charities  and  Donations. 
271 — Interest  on  Plant   Equipment I95 


ADMINISTRATIVE  EXPENSES 


280 — Salaries  of  Executive  Officers 

281 — Expenses  of  Executive  Officers 

282 — Directors'   Fees  and   Expenses 

283 — Salaries   of  Main  Office  Employees.... 

284 — ^Salaries — Miscellaneous    

285 — Stationery,  Printing  and  Office  Supplie; 
286— Postage — General   


287 — Telephone  and  Telegraph 

288 — Water  and   Ice 

289 — Rent — Office  Proportion    

290 — Heat  and  Light  (Proportion) 

291 — Repairs  to  Main  Office  Furniture  and  Fixtures 

293 — Depreciation — Main  Office,  Furniture  and  Fixtures 
(Reserve    Charge) 

293 — Repairs  and  Expense — Main  Office  Automobiles 

294: — Depreciation — Main  Office  Automobiles  (Reserve 
Charge) 

295 — Charities  and   Donations    (Proportion) 

296 — Traveling  Expenses  (other  than  selling) 

297 — Indemnity  Bonds — Executive  Officers  and  Office  Em- 
ployees  

298 — Insurance — Main  Office  Furniture  and  Fixtures 

299 — Taxes — State   and   Federal 

300 — Legal   Expense    

301 — Doubtful  Accounts  (Reserve  Charged 

302 — Cash  Overs  and  Shorts 

303— 

304— 

305— 

306— 


196 

197 
198 
199 
200 
201 
202 
203 
204 
205 
206 
207 
208 

209 
210 

211 
212 
213 

214 

215 
216 
217 
218 
219 


307— 

30S-. 

309 — Incidentals    

310 — Administrative  Expenses — ^^Proportion  charged  to  other 
departments    

30 


220 
221 


Acct.  No. 


CHART  OF  ACCOUNTS 


SELLING  EXPENSES 


26 

Rcf.  No. 

222 


320 — Salaries  of  Traveling  Salesmen 

321 — Commissions,   Traveling  Salesmen 

322 — Traveling  Expenses,  Traveling  Salesmen 

323— Indemnity  Bonds,  Traveling  Salesmen 

324 — Entertainment   

325— Salaries  of  Clerks  (Selling) 

326 — Advertising — Periodicals    

327 — Advertising — Literature    

328 — Advertising — Miscellaneous    

329 — Advertising — Expositions 

330 — Replacement  of  Merchandise^— Gratis 

33i_Rcnt— (Selling   Department    Proportion) 

332_Heat  and  Light  (Proportion) • 

333__Salaries  of  Office  Employees  (Sellmg  Department) ... . 

334— -Stationery,  Printing  and  Office  Supplies  (Sellmg  De- 
partment)  

335— Postage— Selling  Department)    

336— Telephone  and  Telegraph  (Proportion) 

337— Commercial  Agency   Subscriptions .  • . 

338_Depreciation— Selling  Department  (Reserve  Charge).. 

339_Transportation   Charges   (Outgoing  Shipments)  •••••• 

340— Stable  and  Automobile  Expense  (Proportion  on  Out- 
going  Shipments)    

341 — Shipping    Labor    

342 — Shipping  Supplies  and  Expense 


223 
224 
225 
226 
227 

22& 
229 
230 
231 
232 

233 
234 
235 
236 

237 
238 

239 
240 

241 
242 

243 
244 

245 


.343^-. 


344—. 
345—. 
346—. 
347- 


348— 

349 — Incidentals    ;  •  • 

350— Administrative    Expenses— Selling   Proportion 


246 

247 


31 


1 


* 


!     I 


CURRENT  ASSETS 
MANUFACTURING  COMPANIES 

27.     Imprest  Cash  Fund. 

This  is  a  small  fund  out  of  which  to  pay  all  petty 
items  which  are  impracticable  to  pay  by  check.  It  should 
be  started  by  depositing  in  the  bank  all  cash  on  hand,  and 
then  drawing  a  check  payable  to  the  order  of  "Imprest 
Cash"  for  whatever  amount  is  considered  sufficient  for 
petty  expenses  covering  a  short  period.  This  check 
should  be  cashed  and  the  money  placed  in  a  drawer  sepa- 
rate from  the  incoming  cash  as  the  imprest  fund  should 
never  be  mixed  with  other  cash.  When  this  fund  is  once 
established  no  entries  should  be  made  to  it  except  when 
the  regular  fund  is  to  be  either  increased  or  diminished. 
As  disbursements  are  made  from  it,  receipts  should  be 
taken  and  carried  as  cash  items  until  the  fund  requires 
replenishing,  or  until  the  end  of  the  month,  when  a 
voucher  or  summary  (see  378)  should  be  prepared  cover- 
ing the  exact  amount  of  the  disbursements,  for  which  a 
check  should  then  be  drawn  payable  to  "Imprest  Cash" 
and  cashed  to  replace  the  amount  expended,  leaving  the 
fund  intact.  This  check  should  be  entered  in  the  same 
manner  as  other  checks  and  charged  to  the  various  ac- 
counts as  shown  by  the  distribution  on  the  voucher.    The 

32 


CURRENT  ASSETS 


28-29 


voucher  together  with  the  receipted  bills  should  then  be 
filed  and  a  new  one  started  for  future  disbursements. 

This  method  not  only  facilitates  a  thorough  audit  of 
petty  cash  disbursements,  but  provides  for  depositing  all 
incoming  cash  in  the  bank,  and  virtually,  for  checking 
all  disbursements  out  of  the  bank.  In  balancing  the  fund 
the  amount  of  cash  on  hand  together  with  the  cash  items 
or  receipts  in  the  drawer  should  agree  with  the  original 
fixed  amount. 

Debit:  with  the  amount  of  the  checks  drawn  to  create 
or  to  increase  the  fund,  crediting  the  bank. 

Credit:  with  the  amount  of  any  decrease  in  the  fund. 

Balance  of  this  account  is  a  current  asset  and  should 
represent  the  amount  of  cash  set  aside  for  petty  disburse- 
ments. 

28.  Cashier's  Change  Fund. 

Debit:  at  time  of  opening  books  with  the  amount  of 
change  on  hand;  with  the  amount  of  any  increase  in  the 
fund. 

Credit:  with  the  amount  of  any  decrease  in  the  fund. 

Balance  of  this  account  is  a  current  asset  and  should 
represent  the  amount  of  cash  in  cash  registers  or  in  the 
hands  of  cashiers  for  making  change. 

29.  Cash  on  Hand — Undeposited. 

As  mentioned  in  27,  Imprest  Cash  Fund,  all  incoming 
cash  should  be  deposited  in  the  bank  daily,  in  which 
event  the  deposits,  as  shown  by  the  bank  pass  book, 
should  agree  with  the  net  cash  received  as  shown  by  the 
cash  records  after  taking  into  account  any  undeposited 

33 


Ij 


S*=Wi^^fSP^ 


9^ 


15 1 


! 


m 


^!^l 


1.1 


30 


MANUFACTURING  COMPANIES 


items.  Duplicate  deposit  slips  should  be  filed  according 
to  date,  thus  facilitating  the  tracing  of  each  item  directly 
into  the  bank,  if  desired. 

Debit:  at  the  time  of  opening  books  with  the  amount 
of  cash  on  hand  undeposited;  at  the  close  of  the  month, 
with  the  total  of  the  cash  received  for  the  month  as 
shown  by  the  cash  received  records. 

Credit:  at  the  close  of  the  month  with  the  total  cash 
deposited  in  banks. 

Balance  of  this  account  is  a  current  asset  and  should 
represent  the  undeposited  cash  on  hand. 

30.    Cash  in  Banks. 

Although  it  is  customary  with  some  bookkeepers  to 
carry  no  cash  or  bank  accounts  in  the  ledger,  owing  to 
the  fact  that  the  general  or  private  ledger  should  contain 
all  of  the  main  accounts  constituting  the  trial  balance, 
from  which  the  Balance  Sheet  and  Profit  and  Loss  State- 
ment are  prepared,  these  accounts  should  be  carried  in  the 
general  ledger  to  which  totals  only  are  to  be  posted  at 
the  close  of  each  month.  When  funds  are  deposited  in 
more  than  one  bank,  a  separate  account  should  be  carried 
with  each. 

Debit:  at  time  of  opening  books  with  the  amount  of 
cash  in  bank;  at  the  close  of  the  month  with  the  total 
amount  of  cash  deposited  during  the  month. 

Credit:  at  the  close  of  the  month  with  the  total 
amount  of  checks  issued  during  the  month. 

Balance  of  this  account  is  a  current  asset,  and  should 
represent  the  balance  of  cash  in  bank,  providing  all  de- 

34 


CURRENT  ASSETS 


31 


posits  have  been  credited  and  that  all  checks  issued  have 
been  presented  and  paid  by  the  bank. 

31.     Reconciliation  of  Bank  Account. 

In  a  business  of  any  volume  it  seldom  occurs  that  all 
checks  issued  have  been  cashed,  in  which  event  the  bal- 
ance shown  by  the  bank's  statement  fails  to  agree  with 
the  balance  shown  on  the  check  register. 

This  difference  should  be  reconciled  by  taking  into 
account  all  outstanding  checks  and  deposits  which  may 
not  have  been  entered  by  the  bank. 

It  is  understood,  of  course,  that  all  bank  checks 
should  be  numbered  consecutively  in  advance  of  issuing, 
the  numbering  to  be  continuous  throughout  the  year  at 
least.  When  the  checks  are  returned  from  the  bank  at 
the  close  of  each  month,  they  should  first  be  checked  with 
the  bank's  adding  machine  slips  accompanying  the  checks, 
before  sorting.  They  should  then  be  sorted  according  to 
number  and  checked  with  the  items  in  the  check  register, 
placing  a  red  ink  check  mark  after  each  item  returned. 
The  unchecked  items  should  then  be  listed  as  shown  on 
the  following  page,  and  the  reconciliation  preserved  for 
future  reference. 


35 


( 


32  MANUFACTURING  COMPANIES 

Reconciliation  of  account  with 


for  the  month  of 191 

Balance     as     shown     by     bank's     statement 


Bank 


\ 


■I 

I 


191 


-  f 


i*'; 


Add    deposit    of not    credited    by 

bank  until  the  following  month 


$13,238.96 


672.20 


13,911.16 


Deduct  outstanding  checks  as  follows 


Check  No. 

Amount 

2030 

$100.00 

2141 

40.00 

2248 

30.70 

2260 

1.65 

2372 

3.98 

2390 

643.70 

2392 

98.73 

2393 

100.00 

2394 

200.00 

2395 

300.00 

Total  checks  outstanding 


1,518.76 


Balance  as  shown  by  check  register 191     $12,392.40 


32.     Stocks  and  Bonds  of  Other  Companies. 
This  account  should  include  all  stocks  and  bonds  pur- 
chased for  investment  of  any  funds  not  required  in  the 

3^ 


CURRENT  ASSETS 


33 


operation  of  the  business.     It  does  not  include,  however, 
bonds  purchased  for  the  Sinking  Fund. 

A  separate  ledger  account  should  be  kept  with  each 
kind  of  stocks  and  bonds,  giving  the  following  partic- 
ulars: date  purchased,  name,  certificate  or  bond  number, 
quantity  of  bonds  or  shares  of  stock,  price  paid,  par  value ; 
if  bonds,  interest  rate  and  dates  of  payment,  and  maturity. 
If  desired,  a  subsidiary  ledger  may  be  kept  showing  the 
above  details,  controlled  by  an  account  in  the  general 
ledger. 

Debit:  at  the  time  of  opening  books  with  the  market 
value  of  stocks  and  bonds  on  hand;  with  cost  of  all  stocks 
and  bonds  purchased;  with  adjustments  due  to  revalua- 
tions, crediting  Stocks  and  Bonds  Adjustment  account, 
which  at  closing  periods  should  be  transferred  to  Profit 
and  Loss  account  and  shown  on  the  Profit  and  Loss  State- 
ment under  "Other  Revenues**  or  "Other  Expenses  or 
Losses"  as  the  case  may  be. 

Credit:  with  cost  of  stocks  and  bonds  sold;  with 
adjustments  due  to  revaluation,  charging  Stocks  and 
Bonds  Adjustment  account. 

Balance  of  this  account  is  a  current  asset,  and 
should  represent  the  valuation  at  which  stocks  and  bonds 
of  other  companies  are  carried. 

33.    Mortgages  Receivable. 

Each  mortgage  should  be  shown  separately  on  the 
ledger  with  sufficient  space  allowed  to  provide  for  the 
postings  of  payments  and  renewals  relating  to  it.  In 
addition  to  this  account,  an  auxiliary  record  may  be  kept 
containing  the  following  headings:  Number,  Date  given, 

37 


I 


i 


^'w 


MANUFACTURING  COMPANIES 


Payee,  Indorser,  Amount,  Time,  Interest  rate  and  due 
date,  Date  paid. 

Debit:  at  the  time  of  opening  books  with  the  face 
value  of  mortgages  on  hand;  with  all  mortgages  received; 
with  all  mortgages  renewed. 

Credit:  with  payments  received;  with  mortgages 
sold;  with  mortgages  renewed. 

Balance  of  this  account  is  a  current  asset  and  should 
represent  the  face  value  of  mortgages  receivable  on  hand. 

34.     Notes  Receivable. 

This  account  is  often  called  "Bills  Receivable",  but 
as  here  used,  refers  to  promissory  notes  received,  and  is 
therefore  termed  "Notes"  instead  of  "Bills  Receivable". 
Each  note  should  be  shown  separately  on  the  ledger  with 
sufficient  space  allowed  for  the  postings  of  payments  and 
renewals  relating  to  it. 

In  addition  to  this  account  an  auxiliary  record  com- 
monlv  called  "Notes  Receivable  Book"  may  be  kept, 
containing  the  following  headings:  Number,  Date  given, 
Payee,  Indorser,  Amount,  Time,  Interest  rate  and  Pay- 
ment date,  Date  paid. 

Debit:  at  the  time  of  opening  books  with  the  face 
value  of  promissory  notes  and  acceptances  on  hand;  with 
all   notes   and  acceptances  received;   with   all  notes   re- 

riewed. 

Credit:  with  payments  received  on  notes  receivable 
items;  with  all  notes  sold;  with  all  notes  renewed. 

Balance  of  this  account  is  a  current  asset  and  should 
represent  the  face  value  of  notes  receivable  on  hand  and 
notes  receivable  discounted  at  banks  on  which  we  remain 

38 


CURRENT  ASSETS 


35-36 


l. 


guarantor,  which  should  remain  in  this  account  and  be 
offset  by  the  credit  account,  Notes  Receivable  Discounted. 

35.     Notes  Receivable  Discounted. 

This  account  is  a  contingent  liability,  the  company 
being  liable  in  case  the  maker  fails  to  pay  at  maturity  the 
notes  discounted.  It  should  be  shown  on  the  balance 
sheet  as  a  deduction  from  notes  receivable,  or  as  both  a 
contingent  asset  and  liability,  one  offsetting  the  other. 

Debit:  when  notes  previously  discounted  become 
due  and  are  paid,  crediting  the  account.  Notes  Receivable. 

Credit:  at  the  time  notes  receivable  are  discounted 
with  their  face  value,  charging  the  bank  or  party  dis- 
counting. 

Balance  of  this  account  is  a  contingent  liability  and 
represents  notes  discounted  for  which  the  company  is 
contingently  liable. 

36.     Reserve  for  Doubtful  Notes. 

Debit:  with  all  notes  considered  uncollectible. 

Credit:  at  the  time  of  opening  books  for  an  amount 
estimated  to  be  sufficient  to  provide  for  all  losses  on 
notes  considered  doubtful  of  collection;  at  the  close  of 
each  month,  if  profit  and  loss  statements  are  prepared 
monthly,  otherwise  at  closing  periods,  with  an  amount 
estimated  to  be  sufficient  to  provide  for  losses  on  notes 
taken  during  the  period  which  may  prove  to  be  uncollect- 
ible, charging  the  account.  Doubtful  Accounts  (Reserve 

Charge). 

Balance  of  this  account  represents  the  allowance  for 
losses  on  notes  receivable  and  should  be  shown  on  the 

39 


;i 


m 


37 


MANUFACTURING  COMPANIES 


11 


balance  sheet  as  a  deduction  from  them,  the  difference 
representing  the  net  valuation  at  which  they  are  carried. 

37.    Accrued  Interest — Items  Receivable. 

This  item  may  be  kept  according  to  one  of  the  three 
following  methods: 

(i)  Debit;  at  the  time  of  opening  books  with  inter- 
est accrued  on  notes  receivable  and  other  interest  bear- 
ing items;  at  the  close  of  each  month  with  the  amount 
of  interest  accrued  on  these  items  during  the  month, 
crediting  the  account,  Interest  Earned. 

Credit:  with  all  payments  of  interest  on  items  receiv- 
able. 

Balance  of  this  account  is  a  current  asset,  and  should 
represent  interest  accrued  on  notes  and  interest  bearing 
items  receivable. 

(2)  Debit:  at  the  time  of  opening  the  books  with 
interest  accrued  on  items  receivable;  at  closing  periods 
with  interest  accrued  on  items  receivable  at  that  time, 
crediting  the  account.  Interest  Earned. 

Credit:  at  closing  periods  with  the  amount  of  accrued 
interest  shown  at  the  beginning  of  the  period  being  closed, 
charging  the  account,  Interest  Earned. 

Note. — In  this  case  all  interest  received  should  be 
credited  to  the  revenue  account,  Interest  Earned. 

Balance  of  this  account,  after  making  the  above  en- 
tries, is  a  current  asset,  and  should  represent  the  accrued 
interest  on  items  receivable  unpaid. 

(3)  The  above  account  may  be  dispensed  with  and 
the  accrued  interest  at  closing  periods  shown  as  a  debit 
balance  in  the  revenue  account.  Interest  Earned,  in  which 

40 


CURRENT  ASSETS 


38 


n 


ir 


event  all  cash  received  from  this  source  should  be  credited 
to  the  revenue  account.     (See  122). 

38.  Accounts  Receivable — Customers  (Controlling 
Account). 

This  is  a  controlling  account  of  the  individual  bal- 
ances of  customers'  accounts  as  illustrated  in  24.  If  the 
individual  accounts  are  of  such  a  number  as  to  require 
more  than  one  binder  or  section,  a  separate  controlling 
account  may  be  carried  for  each  section.  The  accounts 
receivable  ledgers  should  be  verified  monthly  by  listing 
the  individual  balances  contained  therein,  the  aggregate 
of  which  should  agree  with  the  balance  of  the  controlling 
account. 

Debit:  at  the  time  of  opening  books  with  the  net 
total  of  the  individual  accounts  carried  in  the  accounts 
receivable  ledger;  at  the  close  of  each  month  with  the 
total  charges  to  customers  as  shown  by  the  monthly 
footings  of  the  debit  columns  headed  "Accounts  Re- 
ceivable" in  posting  mediums. 

Note. — The  monthly  totals  of  the  charge  summary 
are  to  be  transferred  to  the  journal,  and  from  there  posted 
to  the  ledger. 

Credit:  at  the  close  of  each  month  with  the  total 
credits  to  customers  for  money,  notes  or  allowances,  in- 
cluding cash  discounts  allowed  as  shown  by  the  monthly 
footings  of  all  credit  columns  headed  "Accounts  Re- 
ceivable" in  posting  mediums. 

Balance  of  this  account  is  a  current  asset  and  should 
represent  the  net  total  of  the  customers*  accounts. 

41 


!'/ 


39-40 


MANUFACTURING  COMPANIES 


CURRENT   ASSETS 


41 


ill 


'  ) 


3g.    Reserve  for  Doubtful  Accounts — Customers. 

In  all  financial  statements,  provision  should  not  only 
be  made  for  accounts  which  are  known  to  be  doubtful  of 
collection,  but  also  for  losses  on  other  accounts,  which 
at  the  time  of  calculating  profits  cannot  be  positively 
determined.  This  reserve  for  bad  accounts  may  be 
created  by  a  monthly  charge  of  a  certain  percent  of  the 
sales,  based  on  past  experience  of  losses  on  bad  accounts. 

Debit:  with  all  customers'  accounts  considered  un- 
collectible, crediting  the  customers'  accounts  charged  off. 

Credit:  at  the  time  of  opening  books  for  an  amount 
estimated  to  be  sufficient  to  provide  for  all  losses  on  ac- 
counts considered  doubtful  of  collection;  at  the  close  of 
each  month,  if  profit  and  loss  statements  are  prepared 
monthly,  otherwise  at  closing  periods,  with  the  percent 
of  the  sales  for  the  period  estimated  to  be  sufficient  to 
provide  for  losses  on  the  accounts  charged  during  the 
period,  charging  Doubtful  Accounts  (Reserve  Charge). 

Balance  of  this  account  represents  the  allowance  for 
losses  on  accounts  receivable,  and  should  be  shown  on 
the  balance  sheet  as  a  deduction  from  them,  the  differ- 
ence representing  the  net  valuation  at  which  they  are 
carried. 

40.     Accounts  Receivable— Sundry  Debtors. 

This  includes  accounts  with  officers  and  employees 
of  the  company,  individual  accounts  with  whom  are  to  be 
carried  in  a  separate  section  of  the  general  ledger,  desig- 
nated by  an  index  tab  marked  "Sundry  Debtors  and 
Creditors".  Briefly,  all  personal  accounts  except  those 
with  customers  and  purchase  creditors,  are  to  be  carried 

42 


in  this  division.  In  cases  where  accounts  with  traveling 
salesmen  are  very  numerous  they  should  be  kept  in  a 
separate  ledger  by  themselves,  a  controlling  account  for 
which  should  be  carried  in  the  general  ledger.  Each  in- 
dividual account  should  be  handled  as  follows: 

Open  the  respective  accounts  with  the  debit  or  credit 
balance  as  the  case  may  be. 

Debit:  with  all  payments  of  cash,  and  with  any  other 
indebtedness  incurred. 

Credit:  with  salaries  and  commissions  earned  by 
them  and  with  expenses  upon  rendering  itemized  ac- 
counts of  same. 

Balance  of  each  individual  account,  when  a  debit,  is 
a  current  asset  and  should  represent  the  amount  due  from 
the  debtor.  On  the  balance  sheet  the  aggregate  debit 
balances  of  these  accounts  should  be  shown  as  "Sundry 
Debtors". 

41.  Reserve  for  Doubtful  Accounts — Sundry  Debt- 
ors (see  40). 

Debit:  with  all  "Sundry  Debtor"  accounts  considered 
uncollectible. 

Credit:  at  the  time  of  opening  books  with  an  amount 
estimated  to  be  sufficient  to  provide  for  all  losses  on  ac- 
counts of  this  nature  considered  doubtful  of  collection; 
at  the  close  of  each  month  with  an  amount  estimated  to 
be  sufficient  to  provide  for  losses  on  accounts  charged 
during  the  month  charging  the  account.  Doubtful  Ac- 
counts (Reserve  Charge). 

Balance  of  this  account  represents  the  allowance  for 
losses  on  Sundrv  Debtors  and  should  be  shown  on  the 

43 


i 


42 


MANUFACTURING  COMPANIES 


CURRENT  ASSETS 


43-44 


i  ih 


I 


balance  sheet  as  a  deduction  from  them,  the  difference 
representing  the  net  value  at  which  they  are  carried. 

42.    Consignments  to  Others. 

The  details  in  regard  to  handling  this  account  de- 
pend upon  such  a  variety  of  conditions  in  different  lines 
of  business  that  no  specific  instructions  applicable  to  all 
cases  will  be  given  here.  The  function  of  this  account, 
as  generally  understood,  is  to  show  the  cost  of  merchan- 
dise in  the  hands  of  others  to  be  sold  on  our  account  and 
risk,  which  in  a  general  way,  may  be  handled  as  follows : 

Debit:  at  the  time  of  opening  books  with  the  cost 
value  of  merchandise  in  the  hands  of  others  to  be  sold 
on  our  account  and  risk;  with  the  cost  of  subsequent 
consignments,  crediting  the  proper  merchandise  stock 
account,  if  a  cost  system  is  maintained,  or  consigned 
merchandise  account  if  a  cost  system  is  not  maintained. 

Credit:  with  expenses  advanced  by  the  consignee  to 
be  allowed  by  us;  with  the  cost  of  consignments  re- 
turned; and  at  the  time  sales  are  reported,  with  the  cost 
of  the  items  sold,  previously  charged  to  this  account, 
charging  the  account  Cost  of  Sales  when  a  cost  system 
is  maintained  or  the  account.  Consigned  Merchandise 
when  one  is  not  maintained.  At  this  time  the  customer 
should  be  charged  for  the  amount  of  the  sale  and  the 
proper  sales  account  credited. 

Balance  of  this  account  is  a  current  asset  and  should 
represent  the  valuation  of  merchandise  in  the  hands  of 
others  to  be  sold  on  our  account  and  risk. 

When  merchandise  is  consigned  to  several  different 
parties,  an  account  should  be  kept  with  each  consignee, 

44 


these  individual  accounts  being  carried  in  a  subsidiary 
ledger  controlled  by  an  account  in  the  general  ledger. 


^  i: 


43.  Inventories  of  Merchandise — ^Branches. 

All  inventories  at  branches  are  to  be  handled  in  a 
similar  manner  as  other  inventories  herein  described. 
(See  44  to  47). 

44.  Inventory  of  Manufacturing  Material  or  Stores. 

This  account  is  here  understood  to  include  all  ma- 
terial purchased  for  manufacturing  purposes  whether  in 
a  raw  or  semi-finished  state,  thus  including  finished  or 
unfinished  parts  when  purchased  from  others  to  be  as- 
sembled into  the  marketable  product. 

This  item  may  be  treated  according  to  one  of  the 
three  following  methods: 

(i)     When  a  cost  system  is  maintained. 

Debit:  at  the  time  of  opening  books  with  the  cost  of 
manufacturing  material  on  hand;  at  the  close  of  each 
month  with  the  cost  of  manufacturing  material  pur- 
chased; with  material  returned  to  the  store  room,  previ- 
ously charged  to  the  account.  Work  in  Process;  with 
the  cost  of  material  returned  by  customers  which  had 
been  previously  charged  to  them,  crediting  the  account, 
Cost  of  Sales. 

Note. — When  freight  and  cartage  charges  on  pur- 
chases of  manufacturing  material  are  included  in  the  costs 
entered  on  stock  records,  or  in  other  words,  when  these 
charges  follow  the  invoice,  they  should  also  be  charged 
to  this  account. 

Credit:  at  the  close  of  each  month  with  the  cost  of 
all   material   withdrawn  from   Stores   as   shown  by  the 

45 


i' 


I  ■ 


MANUFACTURING  COMPANIES 


CURRENT  ASSETS 


45-46 


li 


I'V  ' 


Stores  Distribution  Summary,  charging  the  proper  ac- 
counts, such  as  Work  in  Process,  Plant  accounts,  Ex- 
pense accounts,  Cost  of  Sales,  etc.  as  the  case  may  be; 
with  the  cost  of  discarded  material,  (See  48,  185) ;  with 
the  cost  of  manufacturing  material  returned  to  purchase 
creditors. 

j^^^ote. — Any  transportation  charges  included  in  the 
cost  of  merchandise  returned  to  purchase  creditors  should 
be  charged  to  the  account,  Incoming  Transportation 
Charges,  Undistributed. 

Balance  of  this  account  is  a  current  asset  and  should 
represent  the  cost  of  manufacturing  material  or  stores 
on  hand,  and  should  agree  with  the  aggregate  of  the  in- 
dividual stock  cards. 

(2)  When  a  cost  system  is  not  maintained. 
This  account  is  carried  for  the  purpose  of  showing 
the  value  of  the  manufacturing  material  on  hand  at  the 
beginning  and  close  of  each  period,  and  no  entries  except 
at  these  times  are  to  be  made  to  it,  except  in  cases  where 
the  inventory  at  the  beginning  of  the  period  requires 
adjusting  by  reason  of  errors  having  been  discovered 
subsequently  during  the  period,  in  which  event,  the  con- 
tra entries  should  be  made  to  Surplus  account. 

Debit:  at  the  time  of  opening  the  books  with  the 
cost  of  manufacturing  material  on  hand;  at  closing 
periods  with  the  inventory  at  that  time,  crediting  the 
account,  Manufacturing  Material  Purchases,  to  which  all 
purchases  of  manufacturing  material  should  be  charged, 

in  this  case. 

Credit:  at  closing  periods  with  the  cost  of  manu- 
facturing material  on  hand  at  the  beginning  of  the  period 

46 


being  closed,  charging  the  account,  Manufacturing  Ma- 
terial Purchases. 

Balance  of  this  account  at  closing  periods,  after  mak- 
ing the  above  entries,  is  a  current  asset  and  should  rep- 
resent the  cost  of  manufacturing  material  on  hand. 

(3)     When  a  cost  system  is  not  maintained. 

The  above  ledger  accounts  may  be  dispensed  with 
and  the  inventory  at  closing  periods  shown  as  a  debit 
balance  in  the  account,  Manufacturing  Material  Pur- 
chases. 

45.  Inventory  of  Semi-Finished  Product  or  Stores. 

This  account  at  closing  periods  should  represent  the 
cost  value  of  all  completed  parts  on  hand  on  which  labor 
has  been  performed,  which,  when  assembled,  will  lose 
their  indentity  and  become  a  part  of  the  finished  product, 
and  should  be  treated  in  a  similar  manner  as  described 
in  44,  Inventory  of  Manufacturing  Material  or  Stores, 
except  that  no  purchases  should  be  charged  to  it;  and 
when  a  cost  svstem  is  not  maintained,  it  should  be  treated 
as  work  in  process  and  included  in  the  account.  Inventory 
of  Work  in  Process. 

The  cost  value  should  include  the  three  elements  of 
direct  material,  direct  labor  and  manufacturing  overhead 
or  burden  as  referred  to  in  278. 

46.  Inventory  of  Finished  Product  or  Stores. 
This  account  at  closing  periods  should  represent  the 

cost  value  of  the  manufactured  product  on  hand  which 
has  been  completed  and  is  ready  for  shipment,  and  should 
be  treated  in  a  similar  manner  as  described  in  44,  In- 

47 


47 


MANUFACTURING  COMPANIES 


I 


\\i 


II 


'i 
1 


1  . 


ventory  of  Manufacturing  Material  or  Stores,  except  that 
no  purchases  should  be  charged  to  it;  and  when  a  cost 
system  is  not  maintained,  the  inventory  entries  at  closing 
periods  in  the  second  method  should  be  made  to  the  ac- 
count, Cost  of  Sales,  in  which  the  inventory  at  closing 
periods  in  the  third  method  should  be  brought  down  as 
a  debit  balance. 

47.    Inventory  of  Work  in  Process. 

This  item  may  be  treated  according  to  one  of  the 
three  following  methods : 

(i)     When  a  cost  system  is  maintained. 

Debit:  at  the  time  of  opening  books  with  the  cost 
value  of  work  in  process  on  hand;  at  the  close  of  each 
month  with  the  cost  of  material  received  from  store 
rooms  for  manufacturing  purposes,  ascertained  from  the 
stores  distribution  summary,  crediting  the  proper  stores 
accounts;  with  the  cost  of  direct  labor  ascertained  from 
the  distribution  of  the  pay  roll,  crediting  the  account. 
Accrued  Wages;  with  the  total  of  the  manufacturing 
overhead  expense  actually  distributed  to  cost  sheets  dur- 
ing the  month,  crediting  the  account,  Undistributed  Man- 
ufacturing Overhead. 

Credit:  at  the  close  of  each  month  with  the  cost  of 
material  returned  and  transferred  to  store  rooms,  as 
shown  by  the  summary  of  material  transferred  to  store 
rooms,  charging  the  proper  stores  accounts;  with  the 
cost  of  shipments  from  work  in  process,  charging  the 
Cost  of  Sales. 

Balance  of  this  account  is  a  current  asset  and  should 
represent  the  cost  of  work  in  process  on  hand  at  the  close 

48 


CURRENT  ASSETS 


47 


of  the  month  after  making  the  above  entries.  This  con- 
trolling account  should  agree  with  the  aggregate  of  the 
balances  shown  on  the  individual  cost  sheets. 

(2)  When  a  cost  system  is  not  maintained. 

This  account  is  carried  for  the  purpose  of  showing 
the  value  of  the  work  in  process  of  manufacture  on  hand 
at  the  beginning  and  close  of  each  period,  and  no  entries, 
except  at  these  times,  are  to  be  made  to  it  except  in 
cases  when  the  inventory  at  the  beginning  of  the  period 
requires  adjusting  by  reason  of  errors  having  been  dis- 
covered subsequently  during  the  period,  in  which  event, 
the  contra  entries  should  be  made  to  Surplus  account. 

The  items  constituting  this  inventory  should  be 
priced  at  manufacturing  cost  as  defined  in  251  and  278. 

Debit:  at  the  time  of  opening  books  with  the  cost  of 
work  in  process  on  hand;  at  closing  periods  with  the 
cost  of  merchandise  in  process  on  hand  at  that  time, 
crediting  the  account,  Cost  of  Product  Manufactured. 

Credit:  at  closing  periods  with  the  cost  of  work  in 
process  on  hand  at  the  beginning  of  the  period,  charging 
the  account,  Cost  of  Product  Manufactured. 

Balance  of  this  account  at  closing  periods,  after  mak- 
ing the  above  entries,  is  a  current  asset  and  should  rep- 
resent the  cost  of  work  in  process  of  manufacture  on 
hand. 

(3)  When  a  cost  system  is  not  maintained. 

The  above  ledger  accounts  may  be  dispensed  with 
and  the  inventory  at  closing  periods  shown  as  a  debit 
balance  in  the  account,  Cost  of  Product  Manufactured. 


49 


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48-49 


MANUFACTURING  COMPANIES 


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48.  Reserve  for  Depreciation  of  Manufacturing  Ma- 
terial and  Work  in  Process. 

Debit:  with  the  amount  of  material  scrapped,  credit- 
ing the  account,  Work  in  Process  or  the  proper  stores 
account  as  the  case  may  be;  at  closing  periods  with  the 
amount  of  any  decrease  in  the  reserve  for  depreciation. 

Credit:  at  the  time  of  opening  books  with  the  amount 
of  reserve  calculated  for  depreciation  on  these  items ;  and 
at  closing  periods  with  the  amount  of  any  increase  of  this 
reserve,  charging  the  account,  Obsolete  or  Spoiled  Ma- 
terial. 

Balance  of  this  account  represents  the  allowance  for 
depreciation  to  be  deducted  on  the  balance  sheet  from 
the  inventories  affected,  extending  the  net  value  at  which 
the  inventories  are  to  be  carried  from  the  standpoint  of 

a  going  concern. 

Note — When  a  reserve  for  depreciation  of  finished 
product  is  carried,  it  should  be  treated  as  described  in 

254. 

49.     Undistributed  Manufacturing  Overhead. 

Debit:  at  the  close  of  each  month  with  the  total  man- 
ufacturing expenses  for  the  month,  crediting  the  account, 
Manufacturing  Expenses. 

Credit:  at  tfee  close  of  each  month  with  the  total 
overhead  expenses  actually  distributed  to  individual  cost 
sheets,  charging  the  account,  Inventory  of  Work  in  Pro- 
cess. 

Balance  of  this  account  should  represent  the  undis- 
tributed manufacturing  overhead,  this  amount  being  the 
difference  between  the  actual  manufacturing  expenses 
and  the  amount  actually  distributed  to  cost  sheets. 

SO 


CURRENT  ASSETS 


50-51 


50.  Treasury  Stock — Preferred. 

51.  Treasury  Stock — Common. 

These  accounts  should  not  be  treated  or  regarded  as 
being  the  same  as  the  accounts  of  Capital  Stock  Unis- 
sued. The  term  "Treasury  Stock"  as  here  intended,  rep- 
resents the  company's  own  stock  which  has  been  previ- 
ously issued  and  subsequently  acquired  by  purchase  or 
otherwise  and  held  in  the  treasury;  while  the  account. 
Capital  Stock  Unissued,  represents  exactly  what  the  term 
implies,  that  is,  original  authorized  stock  which  has  never 
been  issued.  Many  bookkeepers  erroneously  take  these 
accounts  to  mean  the  same.  In  most  states  it  is  unlawful 
for  a  corporation  to  buy  its  own  stock,  however,  a  com- 
pany may  acquire  it  in  various  ways.  For  example,  to 
satisfy  a  claim  against  a  stockholder  who  may  be  indebted 
to  the  company,  or  it  purchases  its  own  stock  at  de- 
linquent sales  provided  there  are  no  other  bidders;  also 
stock  is  sometimes  donated  to  the  company  for  the  pur- 
pose of  raising  working  capital. 

Debit:  with  the  par  value  of  stock  acquired,  credit-, 
ing  the  account  Reserve  for  Working  Capital  with  the 
difference  between  the  amount  paid  and  the  par  value. 

Credit:  with  the  par  value  of  Treasury  Stock  sold, 
charging  cash  for  the  amount  of  cash  received,  and  Work- 
ing Capital  for  the  difference  between  the  cash  received 
and  the  par  value,  if  sold  below  par. 

Balance  of  this  account,  although  an  asset  of  ques- 
tionable value  in  certain  cases,  represents  the  par  value 
of  the  company's  own  stock  on  hand  previously  issued, 
and  subsequently  acquired. 

51 


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DEFERRED  CHARGES  TO  OPERATION 
MANUFACTURING  COMPANIES 

52.  In  nearly  every  business  there  are  certain 
expense  accounts,  which  at  closing  periods  stand  charged 
with  a  greater  amount  than  is  actually  apphcable  to  the 

period. 

For  example,  a  certain  company  closed  its  books  on 
December  31,  IQIS-    A  charge  was  made  on  the  books  for 
the  cost  of  a  fire  insurance  premium  amountmg  to  $720.00 
for  a  three  year  policy,  dated  June  30,  IQIS-    To  charge 
the  entire  $720.00  to  the  month's  expenses  m  which  it 
was  entered  would  show  misleading  results  when  com- 
paring  one  month's  expenses  with  another.    As  a  matter 
of  fact  the  $720.00  should  be  distributed  over  the  entire 
time  the  insurance  is  in  force,  charging  each  month  with 
its  proportion,  or  in  this  case  $20.00,  which  would  leave 
$600.00  as  prepaid  on  December  31,  I9i3-    This  is  com- 
monly called  a  prepaid  expense  item  or  a  deferred  charge 
to  operation.    Other  such  items  may  be  interest  on  items 
payable,   stationery,  printing  and  office  supplies,  adver- 
tising,  commercial   agency  subscriptions,   telephone   and 
telegraph,  etc.,  also  stable  supplies,  shipping  supplies  and 
general  factory  supplies  when  not  carried  under  a  gen- 
eral stores  system. 

52 


DEFERRED  CHARGES  TO  OPERATION 


53-55 


These  prepaid  expenses  or  deferred  charges  to  oper- 
ation may  be  properly  carried  on  the  books  according  to 
one  of  the  three  following  methods : 

53.  Prepaid  Expenses — First  Method. 

Under  this  method,  for  every  expense  account  hav- 
ing a  prepaid  balance,  a  separate  prepaid  account  should 
be  carried  and  charged  with  its  inventory  at  the  time  of 
opening  the  books  and  with  all  subsequent  purchases.  It 
should  be  credited  at  the  close  of  each  month  with  the 
amount  applicable  to  the  month,  charging  the  relative 
expense  account.  Under  this  method,  each  expense  ac- 
count at  the  close  of  the  month  stands  charged  with  the 
expenses  applicable  to  the  month  and  the  prepaid  account 
shows  the  amount  of  the  prepaid  expense  to  be  carried 
as  an  asset.  The  details  of  the  entries  are  illustrated  in 
the  two  following  accounts. 

54.  Prepaid  Insurance. 

Debit:  at  time  of  opening  books  with  the  amount 
of  unexpired  insurance  premiums ;  with  all  insurance  bills 
subsequently  entered. 

Credit:  with  all  refunds,  cancellations,  etc.;  at  the 
close  of  each  month  with  one-twelfth  of  the  annual  in- 
surance cost,  charging  the  proper  insurance  accounts  in 
the  expense  groups. 

Balance  of  this  account  is  an  asset  classified  as  a 
Deferred  Charge  to  Operation,  and  should  represent  un- 
expired insurance  premiums  paid  in  advance. 

55.  Prepaid  Stationery  and  Office  Supplies. 
Debit:  at  time  of  opening  books,  with  the  cost  value 

53 


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MANUFACTURING  COMPANIES 


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of  stationery  and  office  supplies  on  hand;  with  the  cost 
of  these  items  purchased. 

Credit:  with  all  items  returned;  at  the  close  of  each 
month,  with  the  cost  of  these  items  used,  charging  the 
proper  expense  account.  When  no  records  are  kept  of 
the  actual  amount  of  these  items  used  during  the  month, 
the  amount  may  be  estimated,  the  credit  in  the  last  month 
of  the  fiscal  period  to  be  for  such  an  amount  that  the 
balance  left  in  the  account  will  agree  with  the  physical 

inventory  at  that  time. 

Balance  of  this  account  is  an  asset  classified  as  a 
Deferred  Charge  to  Operation,  and  should  represent  the 
amount  of  stationery  and  office  supplies  on  hand. 

56.    Prepaid  Expenses— Second  Method. 

Under  this  method  one  prepaid  account  is  carried 
containing  the  prepaid  amounts  of  all  expense  accounts. 

These  should  not  be  entered  in  one  combined  total 
but  the  prepaid  balance  relating  to  each  expense  account 
should  be  shown  separately  in  the  one  account,  and  should 
remain  in  this  account  unchanged  until  the  close  of  the 
period. 

It  further  differs  from  the  first  by  charging  all  pur- 
chases directly  to  the  proper  expense  account  at  the  time 
the  purchases  are  entered,  illustrated  as  follows: 

Debit:  at  the  time  of  opening  the  books  with  the 
prepaid  amounts  relating  to  those  expense  accounts  hav- 
ing prepaid  balances;  at  closing  periods,  with  prepaid 
amounts  relating  to  those  expense  accounts  having  pre- 
paid balances  at  that  time,  crediting  the  expense  accounts 
to  which  they  relate. 


54 


DEFERRED  CHARGES  TO  OPERATION 


57 


Credit:  at  closing  periods,  with  the  prepaid  balances 
shown  at  the  beginning  of  the  period  being  closed,  charg- 
ing the  respective  expense  accounts  to  which  they  relate. 

Balance  of  this  account,  after  making  the  above  en- 
tries, is  an  asset  classified  as  a  Deferred  Charge  to  Oper- 
ation and  should  represent  the  prepaid  expenses  at  the 
time  of  closing  the  books. 

57.    Prepaid  Expenses — ^Third  Method. 

Under  this  method  the  prepaid  account  described  in 
the  first  two  methods  may  be  dispensed  with  and  all  pur- 
chases charged  directly  to  the  proper  expense  accounts, 
in  which  event  the  prepaid  amounts  at  closing  periods 
should  be  shown  as  debit  balances  in  the  respective  ex- 
pense accounts  to  which  they  relate.  This  method  is 
shorter  and  possibly  more  simple,  and  for  this  reason  in 
certain  cases  is  to  be  recommended. 


55 


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FIXED  ASSETS  AND  RESERVES 


59 


FIXED  ASSETS  AND  RESERVES 
MANUFACTURING  COMPANIES 

58.  Plant  Accounts. 

Plant  is  a  general  term  applied  to  the  fixed  or  per- 
manent assets  of  a  manufacturing  business,  including  such 
items  as  Real  Estate,  Power  Plant,  Machinery,  Tools, 
Patterns,  Stable  Equipment,  Automobiles,  Office  Furn- 
iture and  Fixtures,  etc.  A  separate  account  should  be 
opened  for  each  item  according  to  the  requirements  in 

each  case. 

To  illustrate  in  a  general  way  the  manner  in  which 
these  accounts  should  be  handled,  the  machinery  account 
is  described  in  detail  as  follows: 

59.  Machinery  and  Machine  Tools. 

The  items  to  be  charged  to  this  account  depend  upon 
the  classification  of  plant  accounts,  but  in  no  event  should 
small  or  perishable  tools  be  charged  to  it.  It  should  em- 
brace the  general  machinery  of  a  plant  such  as  lathes, 
power  presses,  drill  presses,  grinders,  etc.,  together  with 
machine  tools,  line  shafting,  hangers,  belting  and  pulleys. 
If  no  account  is  carried  with  power  plant,  it  should  then 
include  engines,  dynamos,  motors,  etc.  This  account  may 
be  subdivided,  keeping  separate  accounts  with  such  oC 
the  above  items  as  may  be  desirable. 

56 


Debit:  at  the  time  of  opening  books  with  the  cost  or 
replacement  value  of  machinery  on  hand,  including  cost 
of  transportation  and  installation;  with  the  cost  of  all 
new  machinery  acquired  and  all  additions  and  better- 
ments. 

Repairs  to  machinery  are  not  to  be  charged  to  this 
account,  but  to  the  maintenance  account,  Repairs  to 
Machinery. 

Credit:  with  the  cost  of  machinery  replaced  or  dis- 
carded, charging  cash  or  its  equivalent  for  the  amount 
received  for  the  machinery  and  the  account.  Reserve  for 
Depreciation  of  Machinery,  for  the  difference  between 
the  cost  and  the  amount  received. 

Balance  of  this  account  is  a  fixed  asset  and  should 
represent  the  cost  or  replacement  value  of  machinery  on 
hand. 

To  illustrate  the  method  of  treating  this  account,  for 
example,  if  a  certain  machine,  costing  $1,000.00,  is  dis- 
carded and  sold  as  scrap  for  $50.00  and  replaced  by  a 
new  one  costing  $1,500.00,  the  entries  should  be  as  fol- 
lows : 

Debit:  Cash 

Reserve  for  Depreciation — Ma- 
chinery 

Credit:  Machinery  account  (for 
machinery  discarded  and  sold  as 
scrap,  receiving  cash,  $50.00)  1,000.00 

Debit:  Machinery  account  1,500.00 

Credit:  Purchase  Creditor  (for  cost 
of  new  machine) 


$50.00 


950.00 


1,500.00 


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In  regard  to  betterments,  if  a  machine  in,  good  order 
could  be  made  to  increase  its  output,  say,  50%  by  re- 
modeling, the  entire  cost  of  the  improvement  should  be 
charged  to  the  asset  account,  Machinery.  This  account 
should  then  be  credited  with  the  cost  of  the  parts  dis- 
carded, charging  the  account,  Reserve  for  Depreciation 
of  Machinery. 

For  new  construction  or  betterments  of  the  plant, 
when  the  work  is  performed  by  the  company's  own  em- 
ployees, a  production  cost  sheet  or  account  should  be 
carried  for  each  job,  to  which  all  material  and  labor  should 
be  charged.  When  the  job  is  completed  it  should  then 
be  closed  into  the  proper  regular  plant  account. 

In  addition  to  the  general  ledger  account  of  ma- 
chinery, auxiliary  or  perpetual  inventory  records  should 
be  kept,  properly  classified,  furnishing  the  following  de- 
tails: number,  name  of  machine,  from  whom  purchased, 
date  purchased,  cost,  installation  cost,  betterments,  de- 
preciation, net  value,  discarded  or  disposed  of,  repairs, 
remarks.  The  aggregate  of  the  net  replacement  values 
shown  on  the  auxiliary  records  should  agree  with  the 
controlling  account  carried  in  the  general  ledger.  When 
plant  accounts  are  kept  in  this  manner,  the  yearly  taking 
of  physical  inventories  of  the  plant  items  is  unnecessary. 
This  record  also  furnishes  important  data  for  insurance 
purposes  and  statistics  on  depreciation,  and  faciHtates  the 
verification  of  plant  accounts.  When  this  record  is  not 
kept,  entries  are  apt  to  be  made  to  the  machinery  account 
with  less  care  than  if  they  are  analyzed  on  a  perpetual 
inventory  record,  and  the  asset  account  becomes  charged 
with  items  which  belong  to  maintenance  or  vice  versa. 

58 


FIXED  ASSETS  AND  RESERVES 


60 


Following  each  plant  account  in  both  the  ledger  and 
the  balance  sheet  should  be  shown  its  corresponding  Re- 
serve for  Depreciation  account.  In  the  balance  sheet  the 
reserve  account  should  be  shown  as  a  deduction  from 
the  cost  or  replacement  value  of  the  plant  account  to 
which  it  relates,  for  example,  Machinery  account  would 
be  shown  as  follows: 

Machinery  (Cost  Value)  $30,000.00 

Less  Reserve  for  Depreciation  9,000.00 


Extended  on  balance  sheet 


$21,000.00 


60.     Reserve  for  Depreciation. 

A  general  discussion  of  the  subject  of  depreciation, 
which  would  fill  a  volume  in  itself,  must  necessarily  be 
omitted  here,  but  commenting  briefly  on  the  subject, 
balance  sheets  and  profit  and  loss  statements  which  do 
not  provide  for  the  depreciation  of  wasting  fixed  assets 
due  to  wear  and  tear  and  obsolescence,  fail  to  show  the 
true  financial  condition  of  a  business  and  accurate  results 
from  operation. 

If  no  yearly  provision  is  made  for  depreciation,  when 
replacements  are  finally  made,  it  becomes  necessary  to 
charge  the  entire  cost  against  the  operations  of  the  year 
in  which  the  expenditure  for  the  replacement  was  made, 
while  as  a  matter  of  fact  the  cost  of  the  replacement 
should  have  been  distributed  over  the  years  which  re- 
ceived the  services  of  the  thing  replaced,  and  when 
monthly  profit  and  loss  statements  are  prepared,  each 
month's  operating  expenses  should  include  a  charge  for 
one-twelfth  of  the  annual  reserve  charge.     This  expense 

59 


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MANUFACTURING  COMPANIES 


in  a  manufacturing  business  constitutes  a  part  of  the  cost 
of  production,  and  in  a  trading  business  a  part  of  the 
cost  of  conducting  the  business. 

6i.     Rates  of  Depreciation. 

Owing  to  the  nature  and  various  conditions  under 
which  different  plants  are  operated  no  fixed  rates  of  de- 
preciation can  be  given  applicable  to  all  cases,  but  the 
following  annual  rates,  based  on  the  life  of  the  thing 
depreciated,  are  recommended  by  industrial  engineers  in 
many  instances. 

Frame  buildings  2  to  5%,  brick  and  concrete  build- 
ings I  to  3%,  dynamos  5%,  engines  4  to  6%,  boilers  4 
to  8%,  machinery  7,^  to  15%,  hangers,  shafting  and  belt- 
ing ID  to  20%,  factory  fixtures  7}^  to  12%,  horses  15  to 
25%,  wagons  8  to  10%,  automobiles  15  to  25%,  patterns 
20  to  33  1/3%  (See  74),  office  furniture  and  fixtures 
10  to  15%.  The  valuation  of  perishable  tools  should  be 
adjusted  by  physical  inventories  at  fiscal  closing  periods. 

Debit:  with  the  cost  of  the  thing  replaced  or  dis- 
carded, crediting  the  proper  plant  account  for  the  full  cost, 
if  no  value  is  received  for  the  item;  when  fixed  assets 
are  sold  or  exchanged,  debit  this  account  with  the  dif- 
ference between  the  cost  and  the  amount  received  or 
allowed,  crediting  the  proper  plant  account. 

Credit:  at  the  time  of  opening  books  with  the  amount 
of  the  reserve  allowed  for  depreciation;  at  the  close  of 
each  month  with  one-twelfth  of  the  annual  depreciation 
charge,  if  monthly  profit  and  loss  statements  are  pre- 
pared, otherwise  at  closing  periods  with  the  full  amount, 
charging  the  proper  depreciation  expense  account.     For 

60 


FIXED  ASSETS  AND  RESERVES 


61 


example,    if    the    machinery    of    a    plant    amounted    to 
$120,000.00,   and   the   annual   depreciation   was    10%    or 
$12,000.00,   the   monthly  charge  would   be   $1,000.00   as 
follows : 
Dr.  Depreciation — Machinery 

(Reserve  Charge)  $1,000.00 

Cr.  Reserve  for  Deprecia- 
tion— Machinery  $1,000.00 
Balance  of  this  account  represents  the  allowance  on 
account  of  depreciation  to  be  deducted  on  the  balance 
sheet  from  the  plant  account  to  which  it  relates,  extend- 
ing the  present  net  value  at  which  the  item  is  carried 
from  the  standpoint  of  a  going  concern. 

It  is  the  practice  of  some  bookkeepers  to  post  the 
amount  of  the  depreciation  to  the  credit  side  of  the  plant 
account,  calculating  depreciation  on  the  balance  of  the 
account  each  year,  instead  of  carrying  the  plant  account 
at  its  cost  or  replacement  value,  on  which  to  calculate 
the  reserve  charge,  and  a  separate  or  contra  account  for 
the  reserve,  more  fully  explained  as  follows: 

For  illustration,  if  the  machinery  of  a  plant  originally 
cost  $50,000.00,  this  cost  with  additions  for  betterments 
and  deductions  for  items  discarded,  should  be  carried  at 
its  replacement  value.  The  accumulating  reserve  for  de- 
preciation should  be  carried  in  a  separate  account,  follow- 
ing in  the  ledger  the  asset  account  to  which  it  relates. 
This  method  shows  at  all  times  in  one  account  the  cost 
or  replacement  value  of  the  plant  item  and  in  another 
account,  the  total  reserve  for  depreciation  relating  to  it. 
The  advantages  of  this  method  are  of  great  value  in  in- 
surance, taxation,  appraisal  and  other  matters. 

61 


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A  card  record  may  be  kept  showing  each  plant  item 
and  particulars  for  calculating  the  depreciation  reserve 
charge,  but  when  this  is  not  maintained,  for  convenience 
in  making  these  charges  a  schedule  similar  to  the  follow- 
ing may  be  prepared  at  the  beginning  of  each  fiscal  year 
and  filed  for  reference. 


Account 
Depreciated 


Replacement  Monthly  Dcpr.  Charge 

Rate  %    Value  at  Annual     Manufac-   Adminis- 

beginningof  Charge        turing       trative 
fiscal  year  Expenses  Expenses 


Buildings 
Power  Plant 
Machinery  & 

Machine  Tools 
Factory  Fixtures 
Stable   Equipment 
Automobiles — 

Factory 
Patterns 
Office  Furniture  & 

Fixtures 


3  $100,000.00 

5  20,000.00 

10  30,000.00 

10  5,000.00 

15  2,000.00 

20  8,000.00 

20  8,000.00 

10  2,000.00 


3,000.00 
1,000.00 

3,000.00 
500.00 
300.00 

1,600.00 
1,600.00 

200.00 


250.00 
83.33 

250.00 
41.66 
25.00 

133.33 
133.33 


16.66 


62.     Secret  Reserve. 

A  secret  reserve  is  created  by  undervaluing  current 
or  fixed  assets.  In  other  words,  it  is  secretly  reducing 
the  statement  of  the  net  worth  of  a  business.  Such  a 
manipulation  is  sometimes  made  during  prosperous  times 
by  reducing  the  real  value  of  inventories,  and  at  times  of 
more  unfavorable  conditions  of  operation,  restoring  them 
to  their  correct  value  in  order  to  show  uniform  earnings 
during  both  favorable  and  unfavorable  conditions. 

When  secret  reserves  are  created  by  directors  for  the 
purpose  of  reducing  earnings  and  thereby  influence  cer- 
tain stockholders  to  dispose  of  their  stock,  it  is  unques- 
tionably wrong,  and  opinions  differ  among  accountants 
as  to  the  propriety  of  carrying  a  secret  reserve  under 

62 


FIXED  ASSETS  AND  RESERVES 


63 


any  circumstances.  It  is  better  to  make  such  a  provision 
by  creating  a  "Reserve  for  Contingencies'*  to  be  plainly 
set  up  on  the  books  and  balance  sheet  as  such. 

63.    Grounds. 

This  account  should  include  the  valuation  of  the 
land  on  which  the  plant  is  located,  and  should  be  carried 
in  an  account  by  itself,  excluding  buildings;  owing  to  the 
fact  that  buildings  depreciate  in  value  while,  in  many 
cases,  land  appreciates  in  value.  Land  owned  or  acquired, 
which  is  not  in  any  way  connected  with  the  operation  of 
the  business,  should  be  carried  in  a  separate  account 
under  the  heading  of  *'Other  Investments." 

Debit:  at  the  time  of  opening  books  with  the  cost  of 
land  owned;  with  land  subsequently  purchased,  including 
all  expenses  incidental  to  acquiring  title  thereto,  such 
as  legal  expenses,  recording  fees,  etc.;  with  the  cost  of 
all  permanent  improvements  such  as  walks,  fences, 
sewers,  underground  piping,  wells,  grading,  planting  of 
trees,  etc.;  with  the  increased  valuation  as  adjusted  from 
time  to  time,  generally  crediting  Surplus  account  for  such 
increases. 

Repairs  relating  to  these  items  are  not  to  be  charged 
to  this  account,  but  to  the  account,  Repairs  to  Grounds. 

Credit:  with  the  book  value  of  land  sold;  with  the 
decreased  valuation  if  any,  as  subsequently  adjusted, 
charging  Surplus  account. 

Should  the  proceeds  from  the  sale  of  land  be  greater 
or  less  than  the  valuation  at  which  it  was  carried,  the  dif- 
ference should  generally  be  transferred  to  Surplus  ac- 
count. 

63 


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64-68 


MANUFACTURING  COMPANIES 


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Balance  of  this  account  is  a  fixed  asset  and  should 
represent  the  valuation  of  the  ground  on  which  the  plant 
is  located. 

64.  Buildings  and  Building  Fixtures. 

This  account  should  include  the  cost  of  buildings 
constituting  a  part  of  the  plant,  with  appurtenances 
thereto,  embracing  such  items  as  electric  wiring,  gas  and 
electric  fixtures,  plumbing,  heating  apparatus,  etc.  Build- 
ings owned  or  acquired  which  are  not  in  any  way  con- 
nected with  the  operation  of  the  business,  should  be  car- 
ried in  a  separate  account  under  the  heading  of  "Other 
Investments." 

This  account  should  be  treated  in  a  similar  manner 
as  described  in  59. 

65.  Reser\'e  for  Depreciation — Buildings. 

This  and  other  Reserve  for  Depreciation  on  plant 
accounts  should  be  treated  in  a  similar  manner  as 
described  in  60  and  61. 

66.  Power  Plant. 

This  account  should  include  the  cost  of  all  boilers, 
engines,  dynamos,  motors,  etc.  and  appurtenances  thereto, 
and  should  be  treated  in  a  similar  manner  as  described 
in  59. 


67.    Reserve   for   Depreciation— Power  Plant    (See 


65). 


t 


68.    Factory  Fixtures. 

This  account  should  include  the  cost  of  such  items 

64 


FIXED  ASSETS  AND  RESERVES  69-70 

as  chairs,  benches,  desks,  cupboards,  lockers,  shop  trucks, 
partitions,  tool  racks,  etc.,  and  be  treated  in  a  similar 
manner  as  described  in  59. 

69.  Reserve  for  Depreciation — Factory  Fixtures 
(See  65). 

70.  Perishable  Tools. 

This  account  should  include  the  cost  of  files,  twist 
drills,  wrenches,  pliers,  hammers,  tongs,  flasks,  crucibles 
and  similar  items  of  a  short  life. 

Owing  to  the  fact  that  these  items  are  easily  lost, 
broken  and  destroyed,  this  account  should  be  handled  in 
a  different  manner  than  that  described  for  other  regular 
fixed  asset  accounts.  Instead  of  carrying  them  at  the 
purchase  price  with  a  reserve  for  depreciation,  this  ac- 
count should  be  adjusted  by  a  physical  inventory  at  least 
once  each  year,  and  may  be  carried  on  the  books  accord- 
ing to  one  of  the  three  following  methods,  the  one  to  be 
used  depending  upon  the  conditions  in  each  case. 

(i)  Debit:  at  the  time  of  opening  the  books  with 
the  valuation  of  perishable  tools  on  hand  in  use;  with 
the  cost  of  tools  purchased. 

Credit:  with  all  items  returned;  at  the  close  of  each 
month  with  the  estimated  cost  of  tools  replaced  during 
the  month,  charging  the  account.  Repairs  and  Replace- 
ments—Perishable Tools,  the  credit  in  the  final  month 
of  the  fiscal  period  to  be  for  such  an  amount  that  the 
balance  left  in  the  account  will  agree  with  the  physical 
inventory  at  that  time. 

65 


I 


iii 


71 


MANUFACTURING  COMPANIES 


1. 


I 'I 


ii 


! 


Balance  of  this  account  at  closing  periods,  after  mak- 
ing the  above  entries,  is  a  fixed  asset  and  should  represent 
the  valuation  of  perishable  tools  on  hand. 

(2)  Debit:  at  the  time  of  opening  the  books  with 
the  valuation  of  perishable  tools  on  hand  in  use ;  at  closing 
periods  with  their  valuation  at  that  time,  crediting  the 
account.  Repairs  and  Replacements— Perishable  Tools. 

When  no  cost  system  is  maintained,  all  purchases  in 
this  case  should  be  charged  to  the  expense  account,  Re- 
pairs and  Replacements— Perishable  Tools ;  when  a  cost 
system  is  maintained,  purchases  should  be  charged  to 
stores  account  which  should  be  credited  for  tools  as 
issued  and  charged  to  the  above  expense  account. 

Credit:  at  closing  periods  with  the  valuation  of  per- 
ishable tools  on  hand  at  the  beginning  of  the  period  being 
closed,  charging  the  account,  Repairs  and  Replacements 
— Perishable  Tools. 

Balance  of  this  account  at  closing  periods,  after  mak- 
ing the  above  entries,  is  a  fixed  asset  and  should  represent 
the  valuation  of  perishable  tools  on  hand. 

(3)  Under  this  method  the  asset  account.  Perish- 
able Tools,  described  under  the  ^rst  two  methods,  may 
be  dispensed  with  and  all  purchases  charged  directly  to 
the  expense  account.  Repairs  and  Replacements— Perish- 
able Tools,  and  the  inventory  at  closing  periods  shown  as 
a  debit  balance  in  that  account,  but  shown  on  the  balance 
sheet  in  the  asset  account,  Perishable  Tools. 

71.    Stable  Equipment. 

This  account  should  include  the  cost  of  horses,  har- 

66 


FIXED  ASSETS  AND  RESERVES 


72-75 


nesses  and  wagons,  and  be  treated  in  a  similar  manner 
as  described  in  59. 

7a.    Automobiles — Factory. 

This  account  should  include  the  cost  of  autos  and 
auto  trucks  used  in  conjunction  with  manufacturing  de- 
partments, and  be  treated  in  a  similar  manner  as  described 
in  59- 

73.  Patterns  and  Drawings. 

For  each  of  these  items  a  separate  ledger  account 
should  be  carried,  and  be  treated  in  a  similar  manner  as 
described  in  59.  They  should  represent  the  cost  of  such 
Patterns  and  Drawings  as  are  necessary  to  the  manu- 
facture of  the  regular  product.  When  patterns  or  draw- 
ings are  made  for  some  special  job,  they  should  be  charged 
to  the  cost  of  the  job,  in  which  event,  generally  they 
should  not  be  carried  as  an  asset. 

74.  Reserve  for  Depreciation — Patterns  and  Draw- 
ings (Separate  account  for  each). 

Liberal  reserves  should  be  provided  for  the  deprecia- 
tion of  patterns  and  drawings  in  order  to  avoid  carrying 
them  at  enchanced  values.  Futhermore,  at  the  close  of 
each  year  it  is  an  excellent  plan  to  inspect  them  and 
charge  obsolete  patterns  and  drawings  to  their  respec- 
tive Reserve  for  Depreciation  accounts. 

75.  Factory  Office  Furniture  and  Fixtures. 

This  account  should  include  the  cost  of  all  office 
furniture  and  fixtures  used  in  the  manufacturing  end  of 
the  business,  such  as  desks,  chairs,  tables,  typewriters, 

67 


76-79 


MANUFACTURING  COMPANIES 


I    ■ 


III 


i 


adding  machines,  etc.,  and  should  be  treated  in  a  similar 
manner  as  described  in  59. 

76.  AutomobUes — Administrative  Department. 

This  account  should  include  the  cost  of  all  auto- 
mobiles which  are  used  in  conjunction  with  the  adminis- 
trative end  of  the  business,  and  should  be  treated  in  a 
similar  manner  as  described  in  59. 

77.  Main  Office  Furniture  and  Fixtures. 

This  account  should  be  treated  in  a  similar  manner 
as  described  in  59,  and  should  include  the  cost  of  all  of- 
fice furniture  and  fixtures  used  in  the  administrative  end 
of  the  business,  such  as  desks,  chairs,  filing  cabinets,  rugs, 
movable  partitions,  typewriters,  adding  machines,  etc. 
Articles  requiring  frequent  replacement  such  as  inkwells, 
rulers,  waste  baskets,  etc.  should  be  charged  to  Station- 
ery, Printing  and  Office  Supplies  account. 

78.  Branch  Office  Furniture  and  Fixtures. 

This  account  should  include  the  cost  of  all  office  furn- 
iture and  fixtures  at  branch  offices,  and  be  treated  in  a 
similar  manner  as  described  in  59. 

79.  Sinking  Fund. 

This  account,  as  here  used,  represents  cash  or  its 
equivalent  set  aside  periodically  out  of  the  cash  assets  of 
the  business  and  invested  for  the  purpose  of  creating  a 
special  fund,  out  of  which  to  liquidate  bonded  or  other 
indebtedness  at  maturity— illustrated  as  follows: 

68 


FIXED  ASSETS  AND  RESERVES 


79 


First — By  ascertaining  what  sum  of  money  invested 
each  year  would,  with  accumulated  interest,  liquidate  the 
debt  at  maturity. 

Second — By  dividing  the  amount  of  the  indebtedness 
by  the  number  of  years  to  maturity,  placing  equal  amounts 
each  year  in  the  sinking  fund. 

Debit:  with  the  amount  of  cash  set  aside  periodically 
out  of  the  cash  assets  of  the  business  for  the  purpose  of 
creating  the  sinking  fund  above  described,  crediting  cash; 
with  income  from  sinking  fund  investments,  if  the  first 
method  is  used,  crediting  the  account.  Interest  Earned 
on  Sinking  Fund  Investments. 

Note — In  regard  to  income  on  sinking  fund  invest- 
ments when  the  first  method  is  used;  although  the 
account,  Reserve  for  Sinking  Fund,  should  eventually  be 
credited  with  interest  earned  on  the  investments,  the 
author  suggests  showing  such  earnings  among  the  profit 
and  loss  revenues,  as  above  stated,  as  "Interest  Earned 
on  Sinking  Fund  Investments."  Although  income  from 
this  source  is  not  available  for  the  payment  of  dividends, 
it  should  be  included  in  the  total  income  and  be  trans- 
ferred to  the  account,  Reserve  for  Sinking  Fund,  together 
with  the  amount  of  cash  periodically  set  aside  out  of  the 
cash  assets  of  the  business,  and  consequently  showing 
their  sum  as  a  deduction  from  the  total  net  revenues,  not 
as  an  expense,  however,  as  periodical  sinking  fund  appro- 
priations are  not  expenses  but  the  "setting  aside"  out  of 
earnings,  amounts  which  will  eventually  revert  to  surplus. 

If  the  second  method  is  used,  cash  received  on 
account  of  the  interest  earned  on  the  sinking  fund  invest- 
ments  should  be  charged  to  cash   and  credited  to  the 

69 


i 


fi 


So 


MANUFACTURING  COMPANIES 


Mil 


Iv 


account,  Interest  Earned  on  Sinking  Fund  Investments, 
to  be  treated  in  the  same  manner  as  interest  earned  from 
any  other  source. 

Credit:  with  payments  made  from  the  sinking  fund  in 
the  extinguishment  of  the  obligations  for  which  the  fund 
was  created. 

Balance  of  this  account,  although  a  cash  asset,  is 
unavailable  as  working  capital.  It  therefore  virtually 
becomes  a  fixed  asset  and  represents  cash  set  aside  and 
invested  for  the  purpose  of  retiring  certain  obligations  at 
maturity.  See  io8  for  the  distinction  between  "Sinking 
Fund"  and  "Reserve  for  Sinking  Fund." 

80.    Other  Investments. 

When  property,  in  the  nature  of  fixed  assets,  is  ac- 
quired, which  at  the  time  is  in  no  way  related  to  the  busi- 
ness, such  items  may  be  classified  as  "Other  Investments." 
For  example,  a  manufacturing  company  may  acquire  real 
estate  foreign  to  the  business  in  settlement  of  a  debt,  or 
purchase  land  and  hold  it  for  a  future  manufacturing  site. 
A  separate  ledger  account  should  be  kept  with  each 
investment  item  of  this  character. 

Debit:  at  time  of  opening  books  with  the  appraised 
value  of  other  investments  owned ;  with  all  properties  sub- 
sequently acquired. 

Credit:  with  the  book  value  of  all  properties  dis- 
posed of. 

Balance  of  this  account  should  be  classified  as  a 
fixed  asset,  and  should  represent  the  present  value  of  other 
investments  owned. 


70 


INTANGIBLE  ASSETS 
MANUFACTURING  COMPANIES 


81,    Patents. 

Debit:  at  the  time  of  opening  books  with  the  ap- 
praised valuation  of  patents  owned;  with  the  cost  of 
acquiring  other  patents  including  all  expenses  incidental 
thereto,  such  as  the  services  of  patent  attorneys, 
engineers,  draftsmen,  etc. ;  with  adjustments  in  valuation, 
crediting  Surplus  account. 

Credit:  at  the  close  of  each  month  with  one-twelfth 
of  such  an  annual  amount  as  will  charge  off  the  account 
at  the  expiration  of  patents,  if  profit  and  loss  statements 
are  prepared  monthly ;  otherwise,  at  closing  periods,  with 
the  proper  proportion,  charging  the  account,  Extinguish- 
ment of  Patents;  with  adjustments  in  valuations,  charg- 
ing Surplus  account.  (The  original  life  of  a  patent  is 
seventeen  years). 

Balance  of  this  account  is  an  intangible  asset  and 
should  represent  the  valuation  at  which  patents  are  car- 
ried, this  value  depending  upon  the  conditions  under 
which  they  were  acquired.  It  may  represent  only  the 
actual  cost  of  securing  the  patents,  or  it  may  represent 
the  worth  of  the  patents  to  the  business  from  the  view- 
point of  a  going  concern. 

71 


'^1 


82-83 


MANUFACTURING  COMPANIES 


;  • 


*i 


82.    Goodwill. 

Good  will  may  be  briefly  defined  as  representing  the 
value  of  a  business  name,  a  reputation,  a  locality  or 
patronage.  Although  good  will  is  commonly  carried  on 
the  books  as  representing  the  difference  between  the  real 
net  worth  of  a  company  and  its  issued  capital  stock,  in 
other  words,  as  representing  the  watered  stock  or  over- 
capitalization; it  is  also  carried  as  justly  representing  the 
value  to  the  going  concern  of  trade  marks  or  the  reputa- 
tion of  the  goods  or  product  manufactured,  but  any  over- 
capitalization represented  by  such  items  should  never  be 
buried  in  an  account  denominated  "Plant*'  or  in  any  of 
the  various  plant  accounts. 

Debit:  at  the  time  of  opening  books  with  the  amount 
at  which  good  will  is  to  be  carried  on  the  books  from  the 
viewpoint  of  a  going  concern;  with  adjustments,  crediting 
Surplus. 

Credit:  with  amounts  written  off,  charging  Surplus. 
(The  extinguishment  of  good  will  affects  actual  profits  in 
no  way  and  therefore  is  a  charge  against  surplus). 

Balance  of  this  account  is  an  intangible  asset. 

83*     Organization  Expense. 

Debit:  with  all  expenses  incidental  to  the  organiza- 
tion of  the  company,  including  expenses  of  incorporating, 
such  as  attorney's  and  state  fees,  stock  certificate  books, 
seal,  etc.,  together  with  the  cost  of  selling  stock  during 
the  organization  period  to  provide  working  capital. 

Credit:  at  the  close  of  each  month  with  one-twelfth 
of  such  an  annual  amount  as  will  charge  this  account  off 
over  a  term  of  years,  to  be  decided  upon  by  the  manage- 

72 


INTANGIBLE  ASSETS 


83 


ment,  if  profit  and  loss  statements  are  prepared  monthly; 
otherwise,  at  closing  periods,  with  the  proper  proportion, 
charging  the  account.  Extinguishment  of  Organization 
Expense. 

Balance  of  this  account  is  an  intangible  asset  and 
represents  the  portion  of  organization  expenses  to  be 
charged  to  future  periods. 

When  this  account  is  a  comparatively  small  amount, 
say  $500.00,  it  may  be  treated  as  a  prepaid  expense,  and 
shown  on  the  balance  sheet  under  the  caption,  Deferred 
Charges  to  Operation. 


73 


CURRENT  LIABIUTIES 


85-86 


1 


CURRENT  LIABILITIES 
MANUFACTURING  COMPANIES 

84.    Notes  Payable — Loans. 

In  a  large  business,  notes  given  for  money  borrowed 
from  banks  and  other  sources  for  the  general  operation 
of  the  business,  should  be  carried  in  a  separate  account 
from  notes  given  to  purchase  creditors  for  purchases  of 
merchandise,  etc.  Each  note  should  be  shown  separately 
on  the  ledger  with  sufficient  space  allowed  for  the  posting 
of  payments  and  renewals  relating  to  it. 

In  addition  to  keeping  this  account,  an  auxiliary  rec- 
ord, commonly  called  "Notes  Payable  Book,*'  should  be 
kept,  ruled  with  columns  headed  as  follows:  Number, 
Date  given,  In  whose  favor,  Amount,  Time,  Interest  rate, 

Payment  date,  Date  paid. 

Debit:  with  payments  made  to  reduce  the  principal 
of  notes  payable;  with  all  renewals.  (Interest  paid  on 
notes  payable  should  not  be  charged  to  this  account). 

Credit:  at  the  time  of  opening  books  with  the  face  of 
notes  payable  outstanding;  with  all  notes  subsequently 
given ;  with  all  renewals. 

Balance  of  this  account  is  a  current  liability  and 
should  represent  the  amount  owing  on  the  principal  of 
notes  payable. 

74 


85.  Notes  Payable— Purchase  Creditors. 

This  account  should  include  notes  given  to  purchase 
creditors  for  merchandise  and  other  purchases,  and  should 
be  treated  in  a  similar  manner  as  described  in  84. 

86.  Accounts  Payable— Purchase  Creditors  (Con- 
trolling Account). 

This  is  a  controlling  account  of  the  individual  bal- 
ances of  the  purchase  creditors^  ledger  or  of  the  unpaid 
vouchers  carried  in  the  voucher  file,  depending  upon  the 
method  used  in  handling  these  accounts.     (See  24). 

The  accounts  payable  ledger  or  unpaid  voucher  file 
should  be  verified  monthly  by  listing  the  individual  bal- 
ances contained  therein,  the  aggregate  of  which  should 
agree  with  the  balance  of  the  controlling  account. 

Debit:  at  the  close  of  each  month  with  the  total 
amount  of  payments  made  by  money,  note,  returned 
merchandise  or  otherwise,  including  discounts  allowed  by 
purchase  creditors,  as  shown  by  the  monthly  footings  of 
all  debit  columns  headed  "Accounts  Payable,"  in  posting 
mediums. 

Credit:  at  the  time  of  opening  books  with  the  net 
total  of  the  individual  accounts  of  the  accounts  payable 
ledger  or  unpaid  vouchers;  at  the  close  of  each  month 
with  the  total  credits  to  purchase  creditors  for  merchan- 
dise and  other  purchases  as  shown  by  the  monthly  foot- 
ings of  all  credit  columns  headed  "Accounts  Payable"  in 
posting  mediums. 

Balance  of  this  account  is  a  current  liability  and 
should  represent  the  net  total  of  the  purchase  creditors' 
accounts. 


75 


87-89 


MANUFACTURING  COMPANIES 


CURRENT  LIABILITIES 


90 


t 


» 


87.  Accounts  Payable— Sundry  Creditors. 

This  account  should  be  treated  in  a  similar  manner 

as  described  in  40. 

Balance  of  each  individual  account,  when  a  credit,  is 
a  current  liability  and  should  represent  the  amount  due 
the  creditor.  .On  the  balance  sheet  the  aggregate  credit 
balances  of  these  accounts  should  be  shown  as  "Sundry 
Creditors." 

88.  Accrued  Pay  Rolls. 

Debit:  with  all  payments  for  wages  and  salaries. 

In  cases  where  employees  receive  their  compensation 
by  instalments  other  than  regular  pay  periods,  an  account 
should  be  opened  with  each  employee  and  charged  with 
all  cash  payments,  the  account  to  be  carried  among  the 
"Sundry  Debtors."  At  the  close  of  each  pay  period  or  at 
least  at  the  close  of  each  month,  their  personal  accounts 
should  receive  credit  for  the  amount  of  their  compensa- 
tion, charging  Accrued  Pay  Rolls  account. 

Credit :  at  the  time  of  opening  books  with  the  amount 
of  the  unpaid  pay  roll;  at  the  close  of  each  pay  period,  or 
at  the  close  of  each  month,  if  profit  and  loss  statements 
are  prepared  monthly,  with  the  total  amount  of  all  pay 
rolls,  charging  the  proper  expense  accounts  or  other 
accounts  affected  for  which  services  are  rendered. 

Balance  of  this  account  is  a  current  liability  and 
should  represent  accrued  wages  unpaid. 

89.    Accrued  Commissions. 

Debit:  at  the  close  of  each  month  with  the  total 
amount  of  commission  actually  due  or  earned  by  an  agent, 

76 


crediting  the  personal  account  of  the  agent  to  whom  the 
commission  is  payable. 

Credit:  with  adjustments  and  allowances;  at  the 
close  of  each  month  with  the  total  prospective  commis- 
sions on  orders  taken  during  the  month,  but  which  are 
not  due  and  payable  until  certain  conditions  are  fulfilled, 
such  as  the  shipment  of  the  goods  or  the  payment  of  the 
account,  at  this  time  charging  Commission  account  under 
the  Selling  Expense  group. 

Balance  of  this  account  is  a  liability  and  represents 
commissions  accrued  but  not  due. 

If  the  accounts  with  agents  are  numerous  a  subsidiary 
ledger  may  be  kept  containing  the  desired  details,  con- 
trolled by  an  account  in  the  general  ledger. 

90.    Accnied  Items  Payable. 

What  is  stated  in  regard  to  prepaid  expenses  is  also 
generally  applicable  to  accrued  items  payable,  the  prin- 
cipal difference  between  the  two  classes  of  accounts  being 
that  the  former  are  assets,  while  the  latter  are  liabilities. 
(See  52). 

An  illustration  of  accrued  items  payable  is  furnished 
in  the  item  of  interest,  when  a  company  borrowed,  four 
months  prior  to  the  closing  of  its  fiscal  year,  $10,000.00  at 
6%,  both  principal  and  interest  being  payable  in  six 
months.  In  this  case,  on  account  of  the  interest  not  being 
due,  the  books  show  no  interest  having  been  actually 
paid ;  however,  the  period  being  closed  should  be  charged 
for  four  months  accrued  interest  amounting  to  $200.00, 
and  shown  on  the  balance  sheet  among  the  liabilities, 
classified  as  Accrued  Items  Payable.     Other  such  items 

77 


Iv 


M 


91 


MANUFACTURING  COMPANIES 


CURRENT  LIABILITIES 


91 


h       fl™ 


might  be  taxes,  commissions,  electric  current  and  gas. 
This  class  of  accounts  may  be  treated  according  to  one  of 
the  three  methods  described  as  follows : 

91.    Accrued  Interest — Items  Payable. 

(i)  Debit:  with  all  payments  of  interest  on  items 
payable,  crediting  cash  or  its  equivalent. 

Credit:  at  the  time  of  openmg  books  with  the  amount 
of  accrued  interest  on  items  payable;  at  the  close  of  each 
month  with  the  interest  applicable  to  the  month,  charging 
the  account,  Interest  on  Items  Payable. 

Balance  of  this  account  at  the  close  of  each  month  is 
a  current  liability  and  should  represent  interest  accrued  on 
items  payable. 

(2)  Debit:  at  closing  periods  with  the  accrued  in- 
terest on  items  payable  shown  at  the  beginning  of  the 
period  being  closed,  crediting  the  account.  Interest  on 
Items  Payable. 

The  actual  payments  of  interest  in  this  case  should 
be  charged  to  the  expense  account.  Interest  on  Items 
Payable,  and  not  to  the  Accrued  account,  as  done  in  the 
first  method. 

Credit:  at  the  time  of  opening  the  books  with  the 
accrued  interest  on  items  payable;  at  closing  periods 
with  accrued  interest  on  items  payable,  at  that  time 
charging  the  account.  Interest  on  Items  Payable. 

Balance  of  this  account  at  the  close  of  each  month  is 
a  current  liability  and  should  represent  interest  accrued  on 
items  payable. 

(3)  Under  this  method  the  accrued  accounts 
described  in  the  first  two  methods  may  be  dispensed  with, 

78 


in  which  event  all  payments  of  interest  should  be  charged 
to  the  expense  account.  Interest  on  Items  Payable,  and 
the  accrued  amount  at  closing  periods  shown  as  a  credit 
balance  in  that  account. 


79 


h  ! 


I"  - 


.i  i 


I  'I 


FIXED  LIABILITIES 
MANUFACTURING  COMPANIES 

92.  Mortgages  Payable. 

Each  mortgage  should  be  shown  separately  on  the 
ledger  with  sufficient  space  allowed  for  the  posting  of 
payments  and  renewals  relating  to  it.  In  addition  to  this 
account  an  auxiliary  record  may  be  kept  containing  the 
following  headings:  Number,  Date  given,  In  whose 
favor,  Amount,  Time,  Interest  rate.  Payment  date.  Date 
paid. 

Debit:  with  payments  made  to  reduce  the  principal 
of  mortgages  payable ;  with  all  renewals. 

Credit:  at  time  of  opening  books  with  the  unpaid 
balances  on  the  principal  of  mortgages  payable;  with  all 
mortgages  subsequently  assumed;  with  all  renewals. 

Balance  of  this  account  is  a  fixed  liability  and 
should  represent  the  total  amount  owing  on  the  principal 
of  mortgages  payable. 

93.  Bonds  Payable. 

Debit:  with  par  value  of  bonds  retired. 

Credit:  at  time  of  opening  books  with  the  par  value 
of  bonds  outstanding;  with  the  par  value  of  bonds  subse- 
quently issued. 

80 


FIXED  LIABILITIES 


93 


Balance  of  this  account  is  a  fixed  liability  and 
should  represent  the  par  value  of  bonds  outstanding. 

In  regard  to  unissued  bonds,  it  is  considered  sufficient 
to  show,  as  memorandum  only,  on  the  ledger  the  amount 
of  the  authorization. 

In  addition  to  this  account  a  bond  register  should  be 
kept  showing  the  Date,  Number,  To  whom  sold,  Amount, 
Maturity,  Interest  rate,  Payment  dates.  Date  retired. 
The  cancelled  coupons  should  be  pasted  in  books  specially 
prepared  for  that  purpose. 


81 


J4 


i 


m 


CAPITAL  OR  NET  WORTH 
MANUFACTURING  COMPANIES 

94.    Capital  Stock. 

The  capital  stock  of  a  corporation  is  the  aggregate 
par  value  of  its  issued  shares,  while  capital,  in  general,  is 
the  valuation  of  the  property  in  a  business  or  undertaking 
employed  in  conducting  the  business. 

A  corporation  is  an  artificial  body  created  by  law, 
consisting  of  several  natural  persons,  and  having  the 
power  of  perpetual  succession. 

Although  the  account,  Capital  Stock,  may  be  properly 
kept  when  it  shows  only  the  issued  capital  stock,  the 
author  recommends  carrying  accounts  with  both  the 
entire  authorized  stock  and  the  unissued  stock,  their  dif- 
ference representing  the  amount  of  issued  stock.  When 
both  accounts  are  kept,  the  latter  should  follow  the 
former  in  the  ledger. 

When  the  stockholders  of  a  corporation  are  numer- 
ous and  the  stock  is  frequently  transferred,  a  stock  ledger 
should  be  kept,  showing  the  number  of  shares  issued, 
transferred  and  amount  owned  by  each  stockholder. 
Accompanying  this  should  also  be  a  stock  journal,  into 
which  issued  and  transferred  stock  should  be  entered 
from  the  stock  certificate  stubs,  and  from  there  posted  to 
the  stock  ledger.    Accordingly,  the  aggregate  of  the  bal- 

82 


CAPITAL    OR    NET    WORTH 


95-98 


ances  in  the  stock  ledger  should  agree  with  the  amount 
of  issued  capital  stock  shown  by  the  general  ledger.  If 
both  common  and  preferred  stock  are  issued  a  separate 
stock  ledger  and  journal  should  be  kept  for  each,  or  com- 
bined in  one  book  properly  subdivided. 

When  stock  is  transferred,  each  cancelled  certificate 
should  be  marked  "Cancelled"  and  pasted  in  the  certifi- 
cate book  to  the  stub  to  which  it  was  originally  attached. 

95.  Capital  Stock,  Preferred — Authorized. 

96.  Capital  Stock,  Common — ^Authorized. 

When  a  corporation  issues  both  preferred  and  com- 
mon stock,  a  separate  account  should  be  kept  with  each, 
and  treated  as  follows: 

Debit:  with  the  par  value  of  the  reduction  of  the 
capital  stock  when  authorized  by  the  state  in  which  the 
company  is  incorporated. 

Credit:  with  the  total  par  value  of  the  authorizeS 
capital  stock. 

Balance  of  these  accounts  should  represent  the  par 
value  of  the  authorized  stock  respectively. 

97.  Capital  Stock,  Preferred — Unissued. 

98.  Capital  Stock,  Common — Unissued. 
Debit:  with  the  par  value  of  the  unissued  stock. 
Credit:  with  the  par  value  of  stock  when  fully  paid 

up,  at  which  time  certificates  of  stock  should  be  issued; 
with  the  par  value  of  the  reduction  of  the  authorized 
stock.  .  . 

Balance  of  these  accounts  should  represent  the  par 
value  of  the  unissued  capital  stock  respectively. 

83 


>piii 


il    " 


M 


1 


99-100  MANUFACTURING  COMPANIES 

99.  Subscribed  Capital  Stock.  (This  account  is  to 
be  used  only  when  stock  is  sold  on  the  instalment  plan). 

Debit:  with  the  par  value  of  stock  subscribed,  upon 
being  paid  in  full,  crediting  the  account,  Unissued  Capi- 
tal Stock  or  Treasury  Stock,  as  the  case  may  be.  (See  50 
and  ^i). 

Stock  sold  on  the  instalment  plan  should  not  be 
issued  until  fully  paid. 

Credit:  with  the  par  value  of  stock  sold  on  the  in- 
stalment plan,  charging  the  account.  Subscriptions  to 
Capital  Stock. 

Balance  of  this  account  should  represent  the  par 
value  of  the  subscribed  stock  which  is  being  paid  by  in- 
stalments. 

100.  Subscriptions  to  Capital  Stock.  (This  account 
is  to  be  used  onlv  when  stock  is  sold  on  the  instalment 
plan). 

Debit:  with  the  amount  of  Capital  Stock  subscribed, 
payments  for  which  are  to  be  made  by  instalments,  credit- 
ing the  account.  Subscribed  Capital  Stock. 

Credit:  with  all  payments  made  to  apply  on  stock 
sold  on  the  instalment  plan. 

Balance  of  this  account  represents  the  amount  un- 
paid on  stock  sold  on  the  instalment  plan. 

In  addition  to  this  account  a  subsidiary  Subscription 
Ledger  should  be  kept,  showing  the  charges,  credits  and 
balance  due  from  each  subscriber  who  purchases  stock  in 
this  manner. 

84 


r,   I    •■    '    t  i 


CAPITAL    OR    NET    WORTH 


I0I-I02 


loi.     Proprietor's  Capital  or  Investment  Account. 

Debit:  with  all  withdrawals  of  investments  previ- 
ously credited  to  this  account;  with  all  losses  not  appli- 
cable to  the  operations  of  the  current  year's  business;  at 
closing  periods  with  the  debit  balance,  if  any,  transferred 
from  the  proprietor's  personal  drawing  account;  with  the 
net  loss,  if  any,  transferred  from  the  Profit  and  Loss 
account,  unless  the  proprietor  prefers  to  carry  yearly 
profits  or  losses  in  the  Profit  and  Loss  account. 

Credit:  at  time  of  opening  books  with  the  net  invest- 
ment; with  all  additional  investments;  at  closing  periods 
with  the  credit  balance,  if  any,  transferred  from  the  pro- 
prietor's personal  drawing  account;  with  the  net  profits 
transferred  from  the  Profit  and  Loss  account  unless  the 
proprietor  prefers  to  carry  yearly  profits  or  losses  in  the 
Profit  and  Loss  account. 

Balance  of  this  account  at  closing  periods,  when  the 
balance  in  the  Profit  and  Loss  account  is  transferred  to  it, 
should  represent  the  net  worth  of  the  business. 

• 

102.     Proprietor's  Private  or  Drawing  Account. 

Debit:  with  all  merchandise  and  withdrawals  of 
money  for  personal  use. 

Credit:  with  the  monthly  or  yearly  salary  which  the 
business  is  to  allow  the  proprietor  for  his  services,  charg- 
ing the  proper  expense  account. 

Balance  of  this  account  at  closing  periods  is  usually 
closed  into  the  proprietor's  capital  account,  however,  it 
may  be  carried  as  an  asset  or  liability  to  the  business,  if 
desired. 

8s 


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I  HinR 


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•«/: 


tv 


103-105 


MANUFACTURING  COMPANIES 


103.  Partners'  Capital  or  Investment  Accounts. 

A  partnership  is  the  relationship  resulting  from  an 
agreement  between  two  or  more  persons  to  place  their 
money,  properties,  labor  and  skill  or  some  or  all  of  them 
in  an  undertaking,  and  divide  the  resulting  profits  and 
losses  according  to  certain  agreed  upon  proportions. 

When  the  business  is  conducted  as  a  partnership, 
each  partner's  capital  account  should  be  handled  in  a 
similar  manner  as  described  in  loi,  Proprietor's  Capital 
Account,  each  partner  being  credited  with  his  share  of 
the  investment  and  profits,  and  charged  with  his  with- 
drawals and  proportion  of  losses,  if  any. 

104.  Partners'  Private  Accounts. 

These  accounts  are  to  be  handled  individually  in  a 
similar  manner  as  described  under  Proprietor's  Private  or 
Drawing  account,  102. 

105.  Cumulative  Dividends— Preferred  Stock. 
Dividends,  whether  on  preferred  or  common  stock, 

are  legally  payable  only  out  of  surplus,  and  in  case  of  divi- 
dends being  paid  out  of  capital,  or  in  other  words,  when 
there  is  no  surplus  against  which  to  charge  them,  the 
directors  become  individually  liable. 

Debit:  with  the  amount  of  dividends  paid. 

Credit:  at  closing  periods  with  the  amount  of  the 
accrued  dividends  on  the  issued  Cumulative  Preferred 
Stock,  charging  Surplus  account.  (This  should  be  done, 
however,  only  when  authorized  by  the  board  of  directors). 

86 


ii  ' 


CAPITAL    OR    NET    WORTH 


106-107 


Balance  of  this  account  is  a  liability  and  should  rep- 
resent unpaid  dividends  which  have  accrued  on  the  issued 
Cumulative  Preferred  Stock. 

106.  Dividends — Common  Stock. 

When  a  corporation  issues  both  preferred  and  com- 
mon stock,  any  dividends  paid  on  them  should  be  shown 
in  separate  respective  accounts. 

Debit:  with  the  amount  of  dividends  paid. 

Credit:  at  the  time  a  dividend  is  declared  with  the 
total  dividend  authorized  by  the  board  of  directors, 
charging  Surplus  account. 

Balance  of  this  account  is  a  liability  and  should  rep- 
resent dividends  declared,  but  unpaid. 

Each  dividend  should  be  numbered  consecutively  and 
indicated  in  the  particulars  column  of  the  ledger.  When 
the  stockholders  are  numerous,  a  check  may  be  drawn  for 
the  total  amount  of  the  dividend,  charging  the  proper 
dividend  account,  and  depositing  it  in  a  special  bank 
account  against  which  dividend  checks  may  be  drawn  in 
paying  the  dividends  to  the  stockholders,  thus  eliminating 
individual  dividend  checks  from  the  general  books.  When 
treated  in  this  manner,  a  dividend  record  should  be  kept 
showing  in  numerical  order  the  checks  issued  and  to 
whom  paid. 

107.  Stock  Dividend. 

This  account  represents  dividends  paid  in  the  com- 
pany's own  stock. 

Debit:  at  time  of  issuing  stock  in  payment  of  divi- 
dends, crediting  the  account.  Capital  Stock  Unissued. 

87 


t 


},  i 


io8 


MANUFACTURING  COMPANIES 


I'    > 


p:J 


Credit:  with  the  amount  of  stock  dividends  declared 
by  the  board  of  directors,  charging  Surplus  account. 

1 08.    Reserve  for  Sinking  Fund. 

Debit:  with  the  amount  of  obligations  retired,  for 
which  the  reserve  was  created,  crediting  Surplus  account. 

Credit:  with  an  amount  equal  to  the  cash  periodically 
placed  in  the  sinking  fund,  charging  Profit  and  Loss 
accoimt;  with  an  additional  amount  corresponding  to  the 
income  received  from  Sinking  Fund  Investments,  if  the 
first  method  in  79  is  used. 

Balance  of  this  account  is  a  capital  liability  and  rep- 
resents a  portion  of  the  earnings  withheld  from  surplus, 
and  carried  on  the  books  as  an  offset  to  the  account,  Sink- 
ing Fund.  It  is  virtually  a  part  of  surplus  and  will  be 
closed  into  it  upon  the  liquidation  of  the  indebtedness  for 
which  the  sinking  fund  was  created. 

A  Reserve  for  Sinking  Fund  may  be  created  and  car- 
ried as  a  subdivision  of  the  surplus  account  without  actu- 
ally setting  aside  the  cash  in  a  Sinking  Fund,  in  which 
event,  the  object  of  this  account  would  be  merely  to  guard 
against  all  of  the  earnings  being  paid  out  in  dividends. 

The  distinction  between  Sinking  Fund,  Reserve  for 
Sinking  Fund,  and  Reserve  for  Depreciation  accounts, 
briefly,  is  as  follows : 

Sinking  Fund,  as  here  used,  is  understood  to  be  an 
asset  representing  actual  cash  invested  to  meet  a  future 
obligation  or  contingency. 

Reserve  for  Sinking  Fund,  as  here  used,  is  an  off- 
setting account  to  the  Sinking  Fund,  and  represents  a 
portion   of  the   earnings   withheld   from   surplus.      It   is 

88 


CAPITAL    OR    NET    WORTH 


109 


virtually  a  part  of  surplus  and  will  eventually  be  closed 
into  it. 

Reserve  for  Depreciation,  when  relating  to  a  plant 
account,  represents  the  amount  allowed  for  the  deprecia- 
tion of  the  fixed  asset  to  which  it  relates.  Unhke  the 
account.  Reserve  for  Sinking  Fund,  it  is  not  a  part  of  the 
Surplus  account  and  is  not  to  be  closed  into  it,  unless  at  a 
future  time  the  Reserve  for  Depreciation  is  found  to  be 
more  than  adequate  for  the  purpose  for  which  it  was 
created,  in  which  event,  an  adjusting  entry  may  be  made, 
charging  the  account.  Reserve  for  Depreciation,  and 
crediting  Surplus  account;  however,  this  reserve  will  gen- 
erally be  extinguished  by  charges  for  renewals  and 
replacements  of  the  thing  depreciated. 

109.  Reserve  for  Working  Capital.  (When  stock  is 
donated  to  the  company). 

Working  Capital  is  generally  understood  to  mean  the 
excess  of  the  current  assets  over  the  current  liabilities  of 
a  business. 

The  term,  "Reserve  for  Working  Capital,"  is  here 
applied,  as  relating  to  the  issued  capital  stock  of  a  cor- 
poration, donated  to  the  company  and  carried  as  Treasury 
Stock,  to  be  resold  for  the  purpose  of  providing  additional 
working  capital.  (For  illustrating  entries,  see  324,  325, 
326,  330). 

Debit:  with  the  discount  on  the  sale  of  stock,  donated 
as  working  capital,  when  sold  at  less  than  par. 

Credit :  with  the  par  value  of  stock  donated ;  with  the 
premiums  on  the  sale  of  such  stock,  when  sold  at  more 

89 


no 


MANUFACTURING  COMPANIES 


CAPITAL    OR    NET    WORTH 


III 


l> 


*     I! 


'  1 


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] 


than  par;  with  the  discount  on  such  stock  purchased  at 
less  than  par. 

Balance  of  this  account  in  this  case  is  virtually  a  part 
of  Surplus,  and  although  not  available  for  the  payment  of 
dividends,  may  represent  the  par  value  of  stock  donated 
to  be  resold  for  the  purpose  of  raising  working  capital, 
or  it  may  represent  the  proceeds  of  the  sale  of  such  stock 
or  both. 

no.     Surplus. 

Debit:  with  any  adjustments  made  during  the  cur- 
rent fiscal  period  constituting  charges  which  should  have 
been  made  against  profits  of  prior  periods;  with  the 
amount  of  dividends  declared  by  the  board  of  directors, 
crediting  the  proper  dividend  account. 

Credit:  at  the  time  of  opening  books  with  the  amount 
of  undivided  profits;  with  any  adjustments  made  during 
the  current  fiscal  period  constituting  credits  which  should 
have  been  made  to  profits  of  prior  periods ;  with  the  bal- 
ance transferred  from  the  Profit  and  Loss  account  at 
closing  periods,  provided,  that  account  shows  a  gain. 
(Debit  Surplus  account,  if  it  shows  a  loss). 

Balance  of  this  account  at  closing  periods,  if  a 
credit,  should  represent  the  undivided  profits;  if  the  bal- 
ance is  a  debit,  it  is  said  to  represent  an  impairment  or 
deficit. 

As  shown  by  the  illustrations  of  balance  sheets,  this 
account,  together  with  its  subdivisions,  added  to  the 
issued  capital  stock,  represents  the  net  worth  of  the  busi- 
ness, which  is  the  excess  of  the  assets  over  the  liabilities. 

90 


If  the  balance  of  this  account  is  a  debit  instead  of  a 
credit,  it  should  be  shown  on  the  balance  sheet  in  the  posi- 
tion of  the  surplus,  but  denominated  "Impairment,*'  and 
deducted  from  the  amount  of  the  issued  capital  stock, 
extending  the  difference  as  the  net  worth ;  while  if  a  credit 
or  surplus,  it  should  be  added  to  the  capital  stock,  the 
total  being  extended  as  the  net  worth. 

III.     Profit  and  Loss. 

This  account  is  also  called  "Loss  and  Gain,"  but  the 
term  "Profit  and  L-oss"  is  used  here  for  the  reason  that, 
in  financial  statements,  profits  or  revenues  are  more  logi- 
cally shown  before  expenses  and  losses. 

This  account  is  kept  for  the  purpose  of  assembling 
at  closing  periods  the  revenues  and  expenses  from  all 
sources,  the  difference  between  the  totals  of  which  con- 
stitutes the  net  results  for  the  period. 

Make  no  entries  to  this  account  except  at  closing  periods. 
Any  adjustments  of  consequence  affecting  the  opera- 
tions of  prior  periods  should  not  be  made  to  this  account 
or  through  any  of  the  operating  accounts  closing  into  it, 
but  to  the  surplus  account  or  individual  capital  accounts, 
depending  upon  whether  the  business  is  conducted  by  a 
corporation,  individual  or  partnership.  Minor  adjust- 
ments belonging  to  prior  periods  may  be  made  to  the 
current  operating  accounts,  but  never  directly  to  the 
Profit  and  Loss  account.  In  other  words,  operating 
results  should  be  shown  in  the  period  in  which  they 
belong,  and  no  entries  should  be  made  to  the  current 
Profit  and  Loss  account  except  as  coming  from  the 
accounts  regularly  transferred  into  it  at  closing  periods. 

91 


1  4 


MANUFACTURING  COMPANIES 


I'ilp 


Debit:  at  closing  periods  (i)  with  the  total  of  the 
administrative  expense  group  of  accounts;  (2)  with  the 
total  of  the  selling  expense  group;  (if  the  commercial 
expenses  are  not  divided  into  the  two  groups,  "Adminis- 
trative" and  "Selling,"  debit  with  the  total  commercial 
expenses) ;  (3)  with  all  other  expense  accounts  individu- 
ally, such  as  Cash  Discounts  Allowed  Others,  Interest  on 
Items  Payable,  Extinguishment  of  Patents,  etc.,  crediting 
the  respective  expense  accounts. 

Note — In  a  manufacturing  business  the  manufactur- 
ing expenses  should  not  be  closed  directly  into  the  Profit 
and  Loss  account,  but  into  the  account,  Work  in  Process, 
if  a  cost  system  is  maintained ;  and  into  the  account.  Cost 
of  Product  Manufactured,  if  one  is  not  maintained. 

Credit:  at  closing  periods  (i)  with  the  Gross  Profit 
from  sales,  charging  Sales  account;  (2)  with  the  balances 
of  all  other  revenue  accounts  individually,  charging  the 
respective  revenue  accounts. 

Balance  of  this  account  at  closing  periods,  after 
transferring  amounts  to  Sinking  Fund  Reserve  account, 
if  any,  should  be  transferred  to  Surplus  account,  if  a  cor- 
poration. If  the  business  is  conducted  by  an  individual 
or  partnership,  the  balance  is  generally  transferred 
directly  to  the  respective  capital  accounts  of  the  owners; 
however,  it  may  be  transferred  to  an  Undivided  Profits 
account  if  it  is  desired  that  such  an  account  be  carried. 


92 


PROFIT  AND  LOSS  REVENUES 
MANUFACTURING  COMPANIES 

112.     Sales — Finished  Product. 

This  account  should  be  subdivided  to  meet  the 
requirements  in  each  case.  For  example,  where  several 
models  of  machiner}'^  are  manufactured,  a  separate  sales 
account  may  be  kept  for  each. 

Debit:  at  the  close  of  each  month  with  the  total  of 
merchandise  returned  by  customers  at  selling  price,  and 
with  allowances  as  shown  by  the  Credit  Memorandum 
Summary,  crediting  Accounts  Receivable  Controlling 
account;  at  closing  periods  with  the  balance  transferred 
from  the  account.  Cost  of  Sales. 

Credit:  at  the  close  of  each  month  with  the  total  sales 
for  the  month  shown  by  the  Sales  Summary,  charging 
Accounts  Receivable  Controlling  account  and  Cash  Sales 
account,  for  their  respective  amounts. 

Balance  of  this  account,  after  making  the  above 
entries  at  closing  periods,  should  represent  the  gross  profit 
on  sales  to  be  transferred  to  the  Profit  and  Loss  account. 

Note — Instead  of  closing  the  cost  of  sales  into  the 
Sales  account,  a  "Trading  Account,"  as  below  described, 
may  be  carried,  closing  into  it  the  net  sales  and  cost  of 
sales;  or  when  no  cost  system  is  maintained,  the  "Trad- 
ing Account"  may  take  the  place  of  the  Cost  of  Sales 

93 


iif 


I 


ttHBI 


V. 


1 


"3 


MANUFACTURING  COMPANIES 


account  (see  129-260).  The  balance  of  the  "Trading 
Account,"  showing  the  gross  profit  on  sales,  is  closed  into 
the  Profit  and  Loss  account,  but  the  Sales  account  by 
closing  the  cost  of  sales  into  it,  as  described  in  112  and 
258,  shows  the  gross  profit  on  sales  to  be  transferred  to 
Profit  and  Loss,  thus  making  the  Trading  Account  un- 
necessary. 

1 13.    Trading  Account. 

This  account,  when  used,  is  a  subdivision  of  the  Profit 
and  Loss  account  and  is  carried  at  closing  periods  for  the 
purpose  of  showing  the  details  of  arriving  at  the  gross 
profit  on  sales,  when  no  perpetual  inventory  is  kept. 
When  a  trading  account  is  not  kept,  the  functions  of  this 
account  are  taken  care  of  in  the  two  accounts,  Sales  and 
Cost  of  Sales.     (See  112  and  129). 

(a)  Trading  account  for  a  manufacturing  business. 
Debit:    at    closing    periods    with    the    inventory    of 

finished  product  at  the  beginning  of  the  period ;  with  the 
cost  of  product  manufactured  during  the  period. 

Credit:  at  closing  periods  with  the  net  sales  for  the 
period;  with  the  inventory  of  finished  product  at  the  close 
of  the  period. 

Balance  of  this  account  should  represent  the  gross 
profit  on  sales  and  be  transferred  to  Profit  and  Loss 
account. 

(b)  Trading  account  for  a  mercantile  business. 
Debit:    at    closing    periods    with    the    inventory    of 

merchandise  at  the  beginning  of  the  period ;  with  the  cost 
of  merchandise  purchased,  including  transportation 
charges  inward. 

94 


PROFIT  AND  LOSS  REVENUES 


II4-II6 


Credit:  at  closing  periods  with  the  net  sales  for  the 
period;  with  the  inventory  of  merchandise  at  the  close 
of  the  period. 

Balance  of  this  account  should  represent  the  gross 
profit  on  sales  and  be  transferred  to  Profit  and  Loss 
account. 

114.  Sales — Semi-Finished  Product. 

This  account  should  include  the  sale  of  parts  and 
repairs  on  which  manufacturing  operations  have  been  per- 
formed, and  may  be  subdivided  according  to  the  require- 
ments in  each  case. 

It  should  be  treated  in  a  similar  manner  as  described 
in  112. 

115.  Sales — Manufacturing  Material. 

This  account  should  include  the  sale  of  material  on 
which  no  manufacturing  operations  have  been  performed, 
and  should  be  treated  in  a  similar  manner  as  described  in 
112. 

116.  Sales  of  Scrap. 

This  account,  as  the  term  implies,  represents  the  sale 
of  scrap  material. 

Credit:  at  the  close  of  each  month  with  the  total  sales 
of  scrap  as  shown  by  the  Sales  Summary,  charging 
Accounts  Receivable  Controlling  account  and  Cash  Sales 
account  for  their  respective  amounts. 

Balance  of  this  account  at  closing  periods  may  be 
transferred  to  Profit  and  Loss  account  or  to  the  credit  of 
the  manufacturing  account  affected.     (See  185). 

95 


II7-II8 


MANUFACTURING  COMPANIES 


r    '• 


117.  Sales — Miscellaneous. 

Credit:  with  sales  of  miscellaneous  items,  such  as 
barrels,  boxes,  etc.,  shown  by  the  Sales  Summary. 

Balance  of  this  account  at  closing  periods  should  be 
transferred  to  the  Profit  and  Loss  account. 

118.  Cash  Sales. 

This  account  is  not  to  be  understood  as  being  a 
revenue  account,  but  is  kept  in  the  manner  about  to  be 
described,  with  the  object  of  providing  a  thorough  check 
on  cash  sales. 

In  a  business  where  the  cash  sales  are  few  in  num- 
ber, they  should  be  treated  in  a  similar  manner  as  charge 
sales  by  making  an  invoice  for  each  cash  sale,  which 
should  be  marked  "Cash  Sale,"  summarized  and  dis- 
tributed with  the  charge  sales,  only  instead  of  posting 
each  cash  sale  to  the  ledger,  these  invoices  are  entered 
in  a  column  headed  "Cash  Sales,"  and  the  charge  invoices 
in  a  column  headed  "Charge  Customers,"  the  former  to 
be  posted  only  in  total  at  the  end  of  the  month  to  the 
debit  of  the  account.  Cash  Sales  in  the  general  ledger, 
which,  if  all  cash  sales  have  been  accounted  for,  should 
balance  with  the  total  cash  credits  posted  from  the  cash 
received  records. 

In  a  retail  business  where  the  cash  sales  are  numer- 
ous, they  should  be  summarized  and  distributed  according 
to  departments  and  the  total  cash  sales  for  the  day  entered 
in  one  amount  in  the  cash  book. 

Debit:  at  the  close  of  each  month  with  the  total  of  the 
column  headed,  "Cash  Sales,"  of  the  Sales  Summary;  with 
cash  refunds  of  cash  sales,  crediting  Cash. 

96 


m 


PROFIT  AND  LOSS  REVENUES  II9-I2O 

Credit:  at  the  close  of  each  month  with  the  total  of 
the  column  headed  "Cash  Sales"  of  the  Cash  Received 
Records;  with  the  total  cash  sales  returned  as  shown  by 
the  Credit  Memorandum  Summary. 

119.    Revenues — Branches. 

The  details  of  keeping  the  accounts  with  branch 
houses  depend  upon  the  conditions  in  each  specific  case, 
but  it  is  suggested  that,  generally,  a  controlling  account 
with  each  branch  be  carried  in  the  general  ledger,  and  a 
subsidiary  or  branch  ledger  be  kept  containing  certain 
accounts  with  each  branch,  such  as  Cash,  Notes  and 
Accounts  Receivable  with  Reserves,  Fixed  Assets  and 
Reserves,  Notes  and  Accounts  Payable,  Revenues,  Ex- 
penses, Profit  and  Loss  and  Net  Investment.  If  the 
branches  are  few  in  number,  these  accounts  may  be  car- 
ried in  a  section  of  the  general  ledger,  set  off  by  an  index 
tab  marked  "Branch  Ledger."  The  various  branches 
should  prepare  daily  reports  in  dupHcate,  the  original  to 
be  sent  to  the  main  office,  to  be  summarized  and  totals 
posted  at  the  close  of  each  month ;  the  duplicate  to  remain 
at  the  branch  office  for  posting  details. 

120.     Rents  Earned. 

This  account,  as  here  used,  is  intended  to  include 
only  rents  earned  on  properties  owned  which  are  foreign 
to  the  business. 

When  a  portion  of  the  property  owned  by  the  com- 
pany for  conducting  its  business  is  rented  to  others,  the 
revenue  from  that  source  constitutes  a  credit  to  the 
expense  group  to  which  such  rents  would  be  chargeable 

97 


III 


ll    ) 


I2I-I22 


MANUFACTURING  COMPANIES 


when  rented  from  others.  When  a  portion  of  the  prop- 
erty rented  from  others,  is  sublet,  the  revenue  from  that 
source  constitutes  a  credit  to  the  proper  rental  expense 

account. 

Debit:  with  expenses  incurred  on  property  rented  to 

others. 

Credit:  at  the  close  of  each  month  with  the  amount 
applicable  to  the  month,  charging  Accounts  Receivable. 

Balance  of  this  account  at  closing  periods  should  be 
transferred  to  Profit  and  Loss  account. 

121.  Cash  Discounts  Earned. 

Credit:  with  discounts  earned  by  reason  of  paying 
bills  within  a  certain  specified  time.  (This  account  should 
not  be  credited  with  trade  discount). 

Balance  of  this  account  at  closing  periods  should  be 
tranferred  to  Profit  and  Loss  account. 

122.  Interest  Earned. 

This  account  should  include  interest  earned  on  items 
receivable,  such  as  notes  or  open  accounts  drawing  inter- 
est. It  may  be  subdivided  to  meet  the  requirements  in 
each  case,  as  Interest  Earned  on  Notes  Receivable,  Inter- 
est Earned  on  Bonds  or  Other  Investments,  and  kept 
according  to  one  of  the  three  following  methods : 

(i)  Credit:  at  the  close  of  each  month  with  the 
interest  applicable  to  the  month  whether  paid  or  not, 
charging  the  account.  Accrued  Interest— Items  Receiv- 
able, When  not  paid  in  advance.  (When  this  interest  is 
paid  in  advance,  the  above  charge  should  be  made  to  the 
account  of  that  title). 

98 


PROFIT  AND  LOSS  RENTCNUES 


122 


Note — In  this  case  the  interest,  when  actually  paid, 
should  be  credited  to  the  accrued  or  prepaid  account  as 
the  case  may  be. 

Balance  of  this  account  at  closing  periods  should  be 
transferred  to  Profit  and  Loss  account. 

(2)  Debit:  at  closing  periods  with  the  amount  of 
accrued  interest  on  items  receivable  at  the  beginning  of 
the  period  being  closed,  crediting  the  account,  Accrued 
Interest — Items  Receivable,  if  not  paid  in  advance;  with 
the  amount  of  interest  paid  in  advance  at  the  close  of  the 
period,  if  any,  crediting  the  account.  Interest  Paid  in 
Advance  on  Items  Receivable. 

Credit :  with  interest  received ;  at  closing  periods  with 
the  amount  of  accrued  interest  at  that  time,  charging  the 
account,  Accrued  Interest — Items  Receivable,  if  not  paid 
in  advance;  with  the  amount  of  interest  paid  in  advance 
at  the  beginning  of  the  period  being  closed,  if  any,  credit- 
ing the  account,  Interest  Paid  in  Advance  on  Items 
Receivable. 

Balance  of  this  account  at  closing  periods,  after  mak- 
ing the  above  entries,  should  be  transferred  to  Profit  and 
Loss  account. 

(3)  Debit:  at  the  time  of  opening  books  with  the 
amount  of  accrued  interest  on  items  receivable  unpaid; 
at  closing  periods  with  the  net  amount  of  this  account 
after  adding  the  accrued  interest  unpaid  at  that  time  to 
the  credit  side,  and  the  prepaid  amount  to  the  debit  side 
of  the  account,  crediting  the  Profit  and  Loss  account. 

Credit:  at  the  time  of  opening  books  with  the  amount 
of  interest  paid  in  advance  on  items  receivable ;  with  inter- 
est received. 


99 


[i^ 


123 


MANUFACTURING   COMPANIES 


f.. 


I*  > 


!     ii 


'■'A 


H 


I 


•  I  v. 


Balance.  At  closing  periods,  after  making  the  above 
entries,  the  accrued  amount  unpaid  is  a  current  asset  and 
should  be  brought  down  as  a  debit;  the  prepaid  amount 
is  a  current  liability  and  should  be  brought  down  as  a 
credit. 

123.    Miscellaneous  Earnings. 

This  account  should  include  miscellaneous  revenues 
not  provided  for  in  other  revenue  accounts. 

Credit:  at  the  close  of  each  month  with  miscellaneous 

earnings. 

Balance  of  this  account  at  closing  periods  should  be 

transferred  to  Profit  and  Loss  account. 


PROFIT  AND  LOSS  COSTS 
MANUFACTURING  COMPANIES 

124.     Manufacturing  Material  Purchases. 

This  account  may  be  kept  according  to  one  of  the 
two  following  methods  when  a  cost  system,  and  accord- 
ingly a  general  stores  system  is  not  maintained,  and  as 
here  used  is  understood  to  include  all  material  purchased 
for  manufacturing  purposes,  whether  in  a  raw  or  semi- 
finished state. 

(i)  Debit:  with  all  manufacturing  material  pur- 
chased, including  freight  and  cartage  inward  on  same  (see 
188 — Incoming  Transportation  Charges  Undistributed)  ; 
at  closing  periods  with  the  inventory  of  purchased 
material  at  the  beginning  of  the  period  being  closed, 
crediting  the  account.  Inventory — Manufacturing  Ma- 
terial 

Credit:  with  the  cost  of  manufacturing  material 
returned  to  those  from  whom  purchased;  with  the  inven- 
tory at  the  close  of  the  period,  charging  the  account, 
Inventory — Manufacturing  Material. 

Balance  of  this  account,  after  making  the  above 
entries,  should  represent  the  cost  of  material  used  in 
manufacturing,  and  should  be  transferred  to  the  account, 
Cost  of  Product  Manufactured. 


100 


lOI 


ft 


125 


MANUFACTURING  COMPANIES 


PROFIT  AND  LOSS  COSTS 


126 


(2)  Debit:  at  the  time  of  opening  the  books  with 
the  amount  of  Manufacturing  Material-  on  hand;  with  all 
purchases  including  Incoming  Transportation  Charges  on 
same. 

Credit:  with  the  cost  of  Manufacturing  Material 
returned;  at  closing  periods  with  the  balance  of  the 
account  less  the  inventory  at  that  time,  charging  the 
account.  Cost  of  Product  Manufactured. 

Balance  of  this  account,  after  making  the  above 
entries,  is  a  current  asset  and  should  represent  the  amount 
of  Manufacturing  Material  on  hand. 

Note — When  a  cost  system  is  maintained,  purchases 
of  manufacturing  material  should  be  charged  to  General 
Stores  account,  to  be  issued  on  requisition  as  required, 
and  charged  to  the  account.  Work  in  Process,  the  proper 
Stores  account  being  credited  as  explained  in  44. 

125.    Direct  Labor. 

(a)     When  a  cost  system  is  not  maintained. 

This  account  should  include  only  such  charges  for 
labor  as  would  be  charged  directly  to  job  or  process  num- 
bers, if  a  cost  system  were  maintained.  All  other  labor 
charges,  such  as  salaries  of  superintendents,  foremen, 
engineers,  firemen,  watchmen,  truckers,  cleaners,  etc., 
constitute  indirect  labor  and  should  be  charged  to  the 
proper  accounts  in  the  manufacturing  expense  group. 

Debit:  at  the  close  of  each  month  with  the  total 
amount  of  direct  labor,  crediting  Accrued  Wages  account. 

Balance  of  this  account  should  represent  the  cost  of 
labor  charged  directly  to  manufacturing  operations,  and 

102 


at  closing  periods  should  be  closed  into  the  account,  Cost 
of  Product  Manufactured. 

(b)     When  a  cost  system  is  maintained. 

This  account  may  be  omitted  when  a  cost  system 
is  maintained,  for  the  reason  that  all  direct  labor  at  the 
close  of  each  month  or  pay  period  is  charged  from  the 
distribution  of  the  pay  roll  to  the  account,  Work  in 
Process,  as  explained  in  47. 

126.  Manufacturing  Expenses  (Overhead  or  bur- 
den). 

This  is  a  general  term  embracing  all  expenses  in- 
cidental to  manufacturing  operations,  such  as  indirect 
labor,  heat  light  and  power,  maintenance  of  plant,  rent, 
taxes,  insurance,  depreciation  and  such  other  expense 
accounts  as  are  related  to  the  production  of  the  product. 

This  account  is  kept  for  the  purpose  of  assembling 
all  accounts  in  the  manufacturing  expense  group,  either 
monthly  or  at  closing  periods,  the  balance  of  which  is 
to  be  transferred  to  the  account.  Undistributed  Manu- 
facturing Overhead  or  Cost  of  Product  Manufactured, 
depending  upon  whether  or  not  a  cost  system  is  main- 
tained. 

(a)     When  a  cost  system  is  maintained. 

Debit:  at  closing  periods  with  the  sum  of  the  bal- 
ances of  the  accounts  of  the  manufacturing  expense 
group,   crediting  the   individual   expense   accounts. 

Credit:  at  the  close  of  each  month  with  an  amount 
equal  to  the  sum  of  the  month's  charges  to  the  accounts 
of  the  manufacturing  expense  group,  charging  the  ac- 
count, Undistributed  Manufacturing  Overhead. 

103 


1 . 


Ill' 


M,  , 

m 

\  ;i 

,'.'    I 


US' 


1  : 


127 


MANUFACTURING  COMPANIES 


Balance  of  this  account  prior  to  closing  periods 
should  agree  with  the  sum  of  the  balances  of  the  accounts 
of  the  manufacturing  expense  group.  At  closing  periods, 
after  the  above  debit  entry  is  posted,  this  account  should 
balance. 

(b)     When  a  cost  system  is  not  maintained. 

Debit:  at  closing  periods  with  the  sum  of  the  bal- 
ances of  the  accounts  in  the  manufacturing  expense 
group,  crediting  the  individual  expense  accounts. 

Balance  of  this  account  at  closing  periods  represents 
the  overhead  or  burden  and  should  be  closed  into  the  ac- 
count, Cost  of  Product  Manufactured. 

127.  Cost  of  Product  Manufactured  (When  a  cost 
system  is  not  maintained). 

This  account  may  be  kept  according  to  one  of  the 
two  following  methods: 

(i)  Debit:  at  closing  periods  with  the  cost  of  direct 
labor,  crediting  the  account,  Direct  Labor;  with  the  cost 
of  manufacturing  material  used,  crediting  the  account, 
Manufacturing  Material  Purchases;  with  the  total  manu- 
facturing overhead  expenses,  crediting  the  account.  Man- 
ufacturing Expenses;  with  the  inventory  of  work  in  pro- 
cess at  the  beginning  of  the  period,  crediting  the  account, 
Inventory  of  Work  in  Process. 

Credit:  at  closing  periods  with  the  inventory  of 
work  in  process  at  that  time,  charging  the  account.  In- 
ventory of  Work  in  Process. 

Balance  of  this  account  at  closing  periods  should 
represent  the  cost  of  goods  manufactured  during  the 
period,  and  be  transferred  to  the  account.  Cost  of  Sales. 

104 


PROFIT  AND  LOSS  COSTS 


128-129 


(2)  Debit:  at  the  time  of  opening  the  books  with 
the  cost  of  manufactured  product  on  hand;  at  closing 
periods  with  the  cost  of  direct  labor,  crediting  the  ac- 
count. Direct  Labor;  with  the  cost  of  manufacturing 
material  used,  crediting  the  account,  Manufacturing  Ma- 
terial Purchases ;  with  the  total  of  the  overhead  expenses, 
crediting  the  account,  Manufacturing  Expenses. 

Credit:  at  closing  periods  with  the  balance  of  the 
account  less  the  inventory  at  that  time,  charging  the 
account,  Cost  of  Sales. 

Balance  of  this  account,  after  making  the  above  en- 
tries, is  a  current  asset  and  should  represent  the  cost  of 
work  in  process  on  hand. 

128.  Consigned  Merchandise. 

This  account  is  to  be  kept  when  no  cost  system  is 
maintained. 

Debit:  with  the  cost  of  consignments  returned, 
crediting  Consignments  to  Others;  with  the  cost  of  pro- 
duct sold  at  the  time  sales  are  reported,  crediting  the 
account,  Consignments  to  Others. 

Credit:  with  the  cost  of  merchandise  consigned  to 
others  to  be  sold  on  our  account  and  risk,  charging  the 
account  Consignments  to  Others. 

Balance  of  this  account  at  closing  periods  is  to  be 
transferred  to  the  account.  Cost  of  Sales. 

129.  Cost  of  Sales. 

(a)     W^hen  a  cost  system  is  maintained. 

Debit:  at  the  close  of  each  month  with  the  total  cost 

105      • 


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129 


MANUFACTURING  COMPANIES 


of  sales  for  the  month,  crediting  the  proper  inventory 

account. 

Credit:  at  the  close  of  each  month  with  the  total 
cost  of  merchandise  returned  by  customers  during  the 
month,  as  shown  by  the  Credit  Memorandum  Summary, 
charging  the  accounts,  Reserve  for  Depreciation  of  Man- 
ufacturing Material,  Replacements  of  Merchandise 
Gratis,  or  the  proper  inventory  account,  for  their  respec- 
tive proportions. 

Balance  of  this  account  should  represent  the  net  cost 
of  sales  and  at  closing  periods  should  be  transferred  to 

Sales  account. 

(b)     When  a  cost  system  is  not  maintained. 

This  account  may  be  kept  according  to  one  of  the 
two  following  methods : 

(i)  Debit:  at  closing  periods  with  the  balance 
transferred  from  the  account,  Cost  of  Product  Manu- 
factured; with  the  inventory  of  finished  product  at  the 
beginning  of  the  period,  crediting  the  account,  Inventory 
of  Finished  Product;  with  the  balance  transferred  from 
the  account.  Consigned  Merchandise,  if  a  debit  balance. 

Credit:  at  closing  periods  with  the  inventory  of  Fin- 
ished Product  at  that  time,  charging  that  account;  with 
the  balance  transferred  from  the  account.  Consigned 
Merchandise,  if  a  credit  balance. 

Balance  of  this  account  at  closing  periods  should 
represent  the  cost  of  merchandise  sold  during  the  period 
and  should  be  transferred  to  Sales  account. 

(2)  Debit:  at  the  time  of  opening  books  with  the 
cost  of  finished  product  on  hand;  at  closing  periods  with 
the  balance  transferred  from  the  account.  Cost  of  Product 

106 


PROFIT  AND  LOSS  COSTS 


130 


Manufactured;   with   the    balance   transferred   from    the 
account,  Consigned  Merchandise,  if  a  debit  balance. 

Credit:  at  closing  periods  with  the  balance  trans- 
ferred from  the  account,  Consigned  Merchandise,  if  a 
credit  balance;  with  the  balance  of  this  account  (Cost  of 
Sales)  less  the  inventory  of  finished  product  at  that  time, 
charging  Sales  account. 

Balance  of  this  account,  after  making  the  above 
entries,  is  a  current  asset  and  should  represent  the 
amount  of  finished  product  on  hand. 

130.    Administrative  Expenses. 

This  is  a  general  term  embracing  all  expenses  ap- 
plicable to  the  administrative  end  of  the  business,  such 
as  salaries  of  executive  officers,  office  employees,  main 
office  expenses,  office  rent,  stationery,  printing  and  office 
supplies,  directors'  fees,  postage,  telephone  and  telegraph, 
corporation  taxes,  legal  expenses,  depreciation  of  office 
equipment,  etc. 

This  account  is  kept  for  the  purpose  of  assembling  all 
accounts  in  the  Administrative  Expense  group,  either 
monthly  or  at  closing  periods,  depending  upon  the  re- 
quirements in  each  case. 

Debit:  at  closing  periods  with  the  sum  of  the  bal- 
ances of  all  expense  accounts  classified  as  administrative 
expenses,  crediting  the  individual  expense  accounts. 

Credit:  at  the  close  of  each  month  or  at  closing 
periods,  depending  upon  whether  or  not  monthly  Profit 
and  Loss  Statements  are  prepared,  with  the  proportion  of 
expenses  applicable  to  other  departments. 

107 


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131-133 


MANUFACTURING  COMPANIES 


Balance  of  this  account  at  closing  periods  should  be 
transferred  to  Profit  and  Loss  account. 

131.  Selling  Expenses. 

This  is  a  general  term  embracing  all  expenses  appli- 
cable to  the  selling  end  of  the  business,  such  as  salaries 
of  traveling  salesmen,  commissions,  traveling  expenses, 
advertising,  etc.,  and  should  be  treated  in  a  similar  man- 
ner as  described  in  130. 

132.  Cash  Discounts  Allowed  Others. 

This  account  should  include  cash  discounts  taken  by 
customers  on  sales,  but  should  not  include  trade  dis- 
counts. 

Debit:  at  close  of  each  month  with  the  total  dis- 
counts allowed  customers  on  bills  paid  by  them  within 
a  specified  time. 

Balance  at  closing  periods  to  be  transferred  to  Profit 
and  Loss  account. 

133.    Interest  on  Items  Payable. 

This  account  may  be  treated  according  to  one  of  the 
three  following  methods: 

(i)  Debit:  at  close  of  each  month  with  the  amount 
of  interest  accrued  for  the  month  on  interest  bearing 
items  payable,  crediting  the  account.  Accrued  Interest- 
Items  Payable,  if  not  paid  in  advance,  or  the  account, 
Prepaid  Interest— Items  Payable,  if  paid  in  advance. 

Note— In  this  case  the  interest,  when  actually  paid, 
should  be  charged  to  the  accrued  or  prepaid  account  as 
the  case  may  be. 

108 


PROFIT  AND  LOSS  COSTS 


133 


Balance  of  this  account  at  closing  periods  should 
represent  the  actual  interest  cost  for  the  period  and 
should  be  transferred  to  Profit  and  Loss  account. 

(2)  Debit:  with  all  interest  paid  in  cash  or  other- 
wise ;  at  closing  periods  with  the  amount  of  accrued  inter- 
est on  items  payable,  at  that  time  crediting  the  account, 
Accrued  Interest — Items  Payable,  if  not  paid  in  ad- 
vance; with  the  amount  of  the  prepaid  interest  at  the 
beginning  of  the  period  being  closed,  crediting  the  ac- 
count. Prepaid  Interest,  if  paid  in  advance. 

Credit:  at  closing  periods  with  the  amount  of 
accrued  interest  on  items  payable  at  the  beginning  of 
the  period,  charging  the  account,  Accrued  Interest — 
Items  Payable,  if  not  paid  in  advance;  with  the  amount 
of  the  prepaid  interest  at  that  time,  charging  the  account, 
Prepaid  Interest,  if  paid  in  advance. 

Balance  of  this  account  at  closing  periods,  after  mak- 
ing the  above  entries  should  represent  the  actual  inter- 
est cost  for  the  period  and  should  be  transferred  to  Profit 
and  Loss  account. 

(3)  Debit:  at  the  time  of  opening  the  books  with 
the  amount  of  interest  paid  in  advance  on  items  payable; 
with  interest  paid  during  the  period. 

Credit:  at  the  time  of  opening  the  books  with  the 
amount  of  accrued  interest  unpaid  on  items  payable;  at 
closing  periods  with  the  net  amount  of  this  account,  after 
adding  the  amount  of  the  accrued  interest  unpaid  at  that 
time  to  the  debit  side,  and  the  amount  of  the  prepaid 
interest  to  the  credit  side  of  the  account,  charging  Profit 
and  Loss. 

109 


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134-135 


MANUFACTURING  COMPANIES 


Balance.  At  closing  periods,  after  making  the  above 
entries,  the  accrued  amount  unpaid  is  a  current  liability 
and  should  be  brought  down  as  a  credit;  the  prepaid 
amount  is  a  deferred  charge  to  operation  and  should  be 
brought  down  as  a  debit. 

134.  Extinguishment  of  Patents. 

Debit:  at  the  close  of  each  month,  if  profit  and  loss 
statements  are  prepared  monthly,  otherwise  at  closing 
periods,  with  such  a  proportionate  amount  as  will  charge 
off  the  account  of  patents  at  their  expiration,  crediting 
the  account.  Patents. 

Balance  of  this  account  at  closing  periods  should 
represent  the  amount  charged  off  of  Patents  account, 
and  should  be  transferred  to  Profit  and  Loss  account. 

135.  Extinguishment  of  Organization  Expense. 
The    account.     Organization     Expense,     should    be 

charged  off  over  a  certain  period  of  time,  and  treated  in 
a  similar  manner  as  described  in  134,  Extinguishment  of 
Patents.     (See  83). 


110 


MANUFACTURING  EXPENSES 

136.  The  accounts  in  this  group,  which  are  in- 
tended to  include  only  those  expenses  relating  to  the 
operation  of  the  factory,  collectively  constitute  what  is 
termed  "Manufacturing  Overhead  or  Burden." 

These  individual  accounts  at  closing  periods  are  to 
be  closed  into  the  account,  Manufacturing  Expenses. 
Other  entries  relating  to  them  are  described  under  each 
account  heading  as  follows: 

137.  Salaries  of  Superintendents  and  Foremen. 
Debit:  at  the  close  of  each  month  or  pay  period  with 

the  salaries  of  superintendents  and  foremen  whose  time 
is  exclusively  devoted  to  supervision,  also  with  the 
proper  portion  of  the  time  of  sub-foremen  devoting  only 
a  part  of  their  time  to  supervision,  crediting  the  account, 
Accrued  Pay  Rolls,  as  referred  to  in  88. 

138.  Salaries  of  Designers  and  Draftsmen. 
Debit:  at  the  close  of  each  month  or  pay  period  with 

salaries  of  designers  and  draftsmen,  crediting  the  account, 
Accrued  Pay  Rolls. 

Credit:  with  the  cost  of  all  drawings  which  are  to 
be  carried  as  assets,  charging  the  account,  Drawings,  as 

III 


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MANUFACTURING   COMPANIES 


MANUFACTURING  EXPENSES 


142-144 


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referred  to  in  73;  with  the  cost  of  all  drawings  to  be 
charged  to  customers. 

Note— Draftsmen's  daily  time  records  should  show 
the  time  spent  on  each  order  or  drawing  number,  so  that 
the  cost  of  any  particular  drawing  may  be  readily  de- 
termined if  desired. 

139.  Salaries  of  Factory  Accounting  Employees. 
Debit:  at  the  close  of  each  month  or  pay  period  with 

the  salaries  of  time  clerks,  paymasters,  cost  clerks  and 
purchasing  department  employees,  crediting  the  account, 
Accrued  Pay  Rolls. 

140.  Salaries  of  Storekeepers. 

Debit:  at  the  close  of  each  month  or  pay  period  with 
the  salaries  of  storekeepers  and  their  assistants,  credit- 
ing the  account,  Accrued  Pay  Rolls. 

141.  Wages  of  Pattern  Makers. 

(a)     When  a  cost  system  is  not  maintamed. 

Debit:  at  the  close  of  each  month  or  pay  period  with 
the  wages  of  pattern  makers,  crediting  the  account.  Ac- 
crued Pay  Rolls. 

Credit:  with  the  cost  of  all  patterns  which  are 
carried  as  assets,  charging  the  account.  Patterns;  with 
the  cost  of  all  patterns  to  be  charged  to  customers. 

Note— Pattern  makers'  daily  time  records  should 
show  the  time  spent  on  each  order  or  pattern  number, 
so  that  the  cost  of  any  particular  pattern  may  be  readily 
ascertanied  if  desired. 

112 


(b)  When  a  cost  system  is  maintained,  pattern 
makers*  time  is  usually  charged  to  production,  construc- 
tion or  repair  orders. 

142.  Wages — ^Tool  Makers. 

(a)  When  a  cost  system  is  not  maintained. 
Debit:  at  the  close  of  each  month  or  pay  period  with 

the  wages  of  tool  makers,  crediting  the  account,  Accrued 

Pay  Rolls. 

Credit:  with  the  cost  of  all  tools  which  are  to  be 
carried  as  assets,  charging  the  proper  tool  account;  with 
the  cost  of  tools  to  be  charged  to  customers. 

Note — Tool  makers'  daily  time  records  should  show 
the  time  spent  on  each  order  or  tool  number,  so  that  the 
cost  of  any  particular  tool  may  be  readily  ascertained 
if  desired. 

(b)  W^hen  a  cost  system  is  maintained,  tool  makers' 
time  is  usually  charged  to  production,  construction  or 
repair  orders. 

143.  Wages — Inspectors. 

Debit:  at  the  close  of  each  month  or  pay  period  with 
the  wages  of  inspectors  and  testers,  crediting  the  account. 
Accrued  Pay  Rolls. 

144.  Wages — Carpenters,  Painters  and  Millwrights. 
Debit:  at  the  close  of  each  month  or  pay  period  with 

wages  of  carpenters,  painters  and  millwrights,  whose  time 
is  not  chargeable  to  production,  construction  or  repair 
orders,  crediting  the  account.  Accrued  Pay  Rolls. 

113 


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145-148 


MANUFACTURING  COMPANIES 


1 45.  Wages— Truckers. 

Debit:  at  the  close  of  each  month  or  pay  period  with 
the  wages  of  men  when  employed  in  the  transportation 
of  material  throughout  the  plant,  crediting  the  account, 
Accrued  Pay  Rolls. 

146.  Wages — Sweepers  and  Cleaners. 

Debit:  at  the  close  of  each  month  or  pay  period  with 
the  wages  of  persons  when  employed  in  the  general 
sweeping  and  cleaning  of  the  plant,  crediting  the  account, 
Accrued  Pay  Rolls. 

147.  Miscellaneous  Indirect  Labor. 

Debit:  with  all  indirect  labor  not  properly  chargeable 
to  any  other  labor  account,  crediting  the  account.  Accrued 
Pay  Rolls.  For  example,  sweepers,  cleaners,  handlers 
and  truckers  are  chargeable  to  this  account  when  no 
regular  account  for  any  one  of  them  is  provided  in  the 
chart  of  accounts. 

148.  Heat,  Light  and  Power— Labor. 

Debit:  at  the  close  of  each  month  or  pay  period  with 
the  wages  of  engineers,  firemen,  oilers,  etc.,  crediting  the 
account.  Accrued  Pay  Rolls. 

Note—When  a  portion  of  the  heat,  light  and  power 
expense  is  to  be  charged  to  other  than  manufacturing 
departments,  the  balance  in  this  account  at  closing  periods 
should  be  transferred  to  the  account,  Heat,  Light  and 
Power — Proportion. 

114 


MANUFACTURING  EXPENSES 


149 


149.    Heat,  Light  and  Power — Fuel. 

This  account  may  be  treated  according  to  one  of 
the  three  following  methods: 

(i)  Debit:  at  the  close  of  each  month  with  the  cost 
of  fuel  used  during  the  month,  crediting  the  account, 
Prepaid  Fuel,  or  the  proper  stores  account  if  purchases 
are  charged  to  stores. 

Balance  of  this  account  at  closing  periods  should 
represent  the  cost  of  fuel  used  and  should  be  closed  into 
the  account.  Manufacturing  Expenses. 

Note — In  other  accounts  referring  to  this  account 
as  to  the  general  manner  of  treatment,  the  balance  in 
each  case  should  be  closed  to  the  group  in  which  the 
account  is  classified. 

(2)  Debit:  with  all  purchases  of  fuel,  crediting 
Vouchers  or  Accounts  Payable  as  the  case  may  be;  at 
closing  periods  with  the  inventory  of  fuel  at  the  begin- 
ning of  the  period  being  closed,  crediting  the  account, 
Prepaid  Expenses. 

Credit:  with  all  returns  and  allowances;  at  closing 
periods  with  the  inventory  of  fuel  at  that  time,  charging 
the  account.  Prepaid  Expenses.  (See  52). 

Balance  of  this  account  at  closing  periods  should 
represent  the  cost  of  fuel  used  and  should  be  closed  into 
the  account,  Manufacturing  Expenses. 

(3)  Debit:  at  the  time  of  opening  the  books  with 
the  cost  of  fuel  on  hand;  with  all  subsequent  purchases, 
crediting  Vouchers  or  Accounts  Payable  as  the  case  may 
be. 

Credit:  with  all  returns  and  allowances;  at  closing 
periods  with  the  net  amount  of  this  account,  after  add- 

115 


I50I53 


MANUFACTURING   COMPANIES 


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ing  the  inventory  at  that  time  to  the  credit  side  of  the 
account,  charging  the  account,  Manufacturing  Expenses. 

(See  note  above). 

Balance  of  this  account  at  closing  periods,  after  mak- 
ing the  above  entries,  is  a  deferred  charge  to  operation 
and  should  represent  the  amount  of  fuel  on  hand.  (See 
note  in  148). 

150.  Heat,  Light  and  Power— Electric  Current. 
This  account  should  show  the  cost  of  electric  current 

purchased  from   other  power  plants,   and  be  treated  in 
a  similar  manner  as  described  in  177.     (See  note  in  148). 

151.  Heat,  Light  and  Power— Gas. 

This  account  should  show  the  cost  of  gas  purchased 
and  be  treated  in  a  similar  manner  as  described  in  177. 
(See  note  in  148). 

152.  Heat,  Light  and  Power  Supplies. 

This  account  should  show  the  cost  of  miscellaneous 
heat,  light  and  power  supplies  used  and  be  treated  in  a 
similar  manner  as  described  in  149.     (See  note  in  148). 

153.  Heat,  Light  and  Power— Proportion. 

This  account  is  to  be  kept  only  when  a  portion  of 
the  heat,  light  and  power  expense  is  to  be  charged  to 
other  than  manufacturing  departments. 

Debit:  at  closing  periods  in  one  amount  with  the 
total  of  the  balances  shown  by  the  individual  accounts 
relating  to  heat,  hght  and  power  costs,  crediting  these 
individual  accounts. 

116 


MANUFACTURING  EXPENSES 


154 


Credit:  at  the  close  of  each  month,  when  monthly 
profit  and  loss  statements  are  prepared,  '.otherwise  at 
fiscal  closing  periods,  with  the  proportion  to  be  charged 
to  other  than  manufacturing  departments. 

Balance  of  this  account,  after  making  the  above 
entries,  should  represent  the  total  heat,  light  and  power 
expense  applicable  to  manufacturing  departments. 

154.     Repair  or  Maintenance  Accounts. 

The  maintenance  cost  of  each  fixed  asset  account 
should  be  kept  in  a  separate  relative  account;  for  ex- 
ample, all  repairs  to  Machinery  and  Machine  Tools 
should  be  charged  to  the  account.  Repairs  to  Machinery 
and  Machine  Tools.  All  current  repairs  should  be 
charged  to  the  proper  repair  account,  but  replacements 
of  importance  may  be  charged  to  the  fixed  asset  account, 
when  the  article  replaced  is  credited  to  the  fixed  asset 
account  and  charged  to  the  proper  reserve  account.  For 
illustration,  a  new  machine  purchased  to  replace  one 
previously  charged  to  the  fixed  asset  account,  Machinery, 
should  be  charged  to  the  account.  Machinery,  which  ac- 
count should  be  credited  with  the  cost  of  the  article 
replaced,  charging  the  relative  reserve  account.  In  other 
words,  the  fixed  asset  account  should  be  charged  with 
the  cost  of  the  article  purchased  and  credited  with  the 
cost  value  of  the  article  replaced.  It  is  often  difficult  to 
distinguish  between  a  repair  and  a  replacement,  but  to 
be  conservative  all  parts  of  machinery  replaced  should 
be  generally  charged  as  repairs  to  operating  expense, 
using  the  fixed  asset  account  and  reserve  only  when  ex- 
traordinary replacements  are  made. 

117 


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155-156 


MANUFACTURING   COMPANIES 


MANUFACTURING  EXPENSES 


157-160 


In  addition  to  providing  for  the  depreciation  of  wast- 
ing fixed  assets  due  to  wear  and  tear  and  obsolescence  by 
a   reserve   charge   against  manufacturing  operations,   as 
a  general  rule  all  plant  repair  and  maintenance  expenses 
are  also  charged  to  operating  expenses  during  the  period 
in  which  such  expenditures  actually  take  place ;  however, 
in  order  to  show  a  more  uniform  monthly  maintenance 
cost,  separate  reserve  accounts  for  repairs  and  mainte- 
nance may  be  carried,  into  which  to  close  the  repair  ac- 
counts; or  the  general  reserve  charge  may  be  at  such 
a  rate  as  to  cover  both  maintenance  cost  and  deprecia- 
tion, according  to  the  general  understanding  of  the  term. 
Although,   to  be  conservative,   the  author   suggests 
the  adoption  of  the  first  method  in  most  cases,  the  one 
to  be  selected  should  depend  entirely  upon  the  general 
policy  of  the  business  and  the  conditions  in  each  specific 
case.      But    even    in    cases    where    current    repairs    are 
charged  against  the  reserve  accounts,  it  is  suggested  that 
individual  repair  accounts  be  kept  corresponding  to  each 
plant  account,  to  be  closed  into  the  reserve  accounts  to 
which  they  relate,  in  order  to  facilitate  the  establishment 
of  an  average  yearly  rate  for  creating  the  reserve  for 
repairs  and  maintenance. 

155.  Repairs  to  Grounds. 

Debit:  with  the  cost  of  repairs,  as  referred  to  in 
154,  to  walks,  roadways,  wells,  fences,  underground  pip- 
ing, etc. 

156.  Repairs  to  Buildings  and  Building  Fixtures. 
Debit:  with  the  cost  of  repairs,  as  referred  to  in  154, 

118 


to  all  buildings  and  appurtenances  thereto,  embracing 
such  items  as  electric  wiring,  gas  and  electric  fixtures, 
plumbing,  heating  apparatus,  etc. 

157.  Repairs  to  Power  Plant. 

Debit:  with  the  cost  of  repairs,  as  referred  to  in 
154,  to  boilers,  engines,  dynamos,  motors,  and  other 
items  classified  as  a  part  of  the  power  plant. 

158.  Repairs  to  Machinery  and  Machine  Tools. 
Debit:   with   the   cost   of  repairs,   as  referred   to   in 

154,  to  the  general  machinery  of  the  plant,  such  as  lathes, 
power  presses,  drill  presses,  grinders,  etc.,  together  with 
machine  tools,  line  shafting,  hangers,  belting,  chain  hoists, 
pulleys,  etc.  If  no  account  is  carried  with  Power  Plant, 
its  repairs  should  be  charged  to  this  account. 

159.  Repairs  to  Factory  Fixtures. 

Debit:  with  the  cost  of  repairs,  as  referred  to  in  154, 
to  benches,  cupboards,  chairs,  desks,  lockers,  partitions, 
tool  racks,  shop  trucks,  and  such  other  items  classified  as 
factory  fixtures  located  in  the  factory. 

160.  Repairs  and  Replacements— Perishable  Tools. 
This  account  should  include  the  cost  of  repairs  and 

replacements  of  wrenches,  pliers,  hammers,  gongs,  flasks, 
crucibles,  files,  twist  drills,  and  such  other  similar  items 
of  short  life  classified  as  Perishable  Tools,  and  should  be 
handled  according  to  one  of  the  three  following  methods : 
(i)  Debit:  at  the  close  of  each  month  with  the 
estimated  cost  of  tools  used,  crediting  the  account,  Per- 
ishable Tools;  with  the  cost  of  repairs.  (See  70). 

119 


"II 


If 


i6i 


MANUFACTURING  COMPANIES 


Balance  of  this  account  at  closing  periods  should 
represent  the  cost  of  repairs  and  replacements  of  per- 
ishable tools  and  be  closed  into  the  account,  Manufac- 
turing Expenses. 

(2)  Debit:  with  all  purchases  of  tools  if  no  cost 
system  is  maintained;  with  tools  delivered  from  stores, 
if  one  is  maintained;  with  the  cost  of  repairs;  at  closing 
periods  with  the  valuation  of  tools  on  hand  in  use  at  the 
beginning  of  the  period  being  closed,  crediting  the  ac- 
count, Perishable  Tools. 

Credit:  with  all  returns  and  allowances;  at  closing 
periods  with  the  inventory  of  tools  at  that  time,  charging 
the  account,  Perishable  Tools.     (See  70). 

Balance  of  this  account  at  closing  periods  should 
represent  the  cost  of  repairs  and  replacements  of  perish- 
able tools  and  be  closed  into  the  account.  Manufacturing 
Expenses. 

(3)  Debit:  at  the  time  of  opening  the  books  with 
the  valuation  of  perishable  tools  on  hand  in  use;  with 
all  subsequent  purchases. 

Credit:  with  all  returns  and  allowances;  at  closing 
periods  with  the  net  amount  of  this  account  after  add- 
ing the  inventory  at  that  time  to  the  credit  side  of  the 
account,  charging  the  account.  Manufacturing  Expenses. 

Balance  of  this  account  at  closing  periods,  after  mak- 
ing the  above  entries,  is  a  fixed  asset  and  should  represent 
the  valuation  of  perishable  tools  on  hand. 


161.     Repairs  to  Patterns. 
Debit:  with  the  cost  of  all  repairs  and  ch 
patterns. 


anges  to 


120 


MANUFACTURING  EXPENSES 


162-166 


162.  Repairs  to  Factory  Office  Furniture  and  Fix- 
tures. 

Debit:   with  the   cost  of  repairs,   as   referred   to  in 

154,  to  office  furniture  and  fixtures  located  in  the  factory 
office,  such  as  desks,  chairs,  typewriters,  adding  machines, 
etc. 

163.  Wages — Drivers. 

Debit:  at  the  close  of  each  month  or  pay  period  with 
the  wages  of  drivers,  crediting  the  account,  Accrued  Pay 
Rolls. 

Note — When  a  portion  of  this  expense  is  to  be 
charged  to  other  departments,  the  balance  of  this  account 
at  closing  periods  should  be  transferred  to  the  account, 
Stable  Expenses — Proportion. 

i'64.     Stable  Supplies  and  Expense. 

This  account  should  show  the  cost  of  whips,  blankets, 
small  stable  tools,  shoeing,  veterinary  services,  etc.,  and 
be  treated  in  a  similar  manner  as  described  in  149.  (See 
note  in  163). 

165.  Feed  and  Bedding. 

This  account  should  show  the  cost  of  horse  feed  and 
bedding  and  be  treated  in  a  similar  manner  as  described 
in  149.     (See  note  in  163). 

166.  Repairs  to  Stable  Equipment. 

Debit:  with  the  cost  of  repairs,  as  referred  to  in  154, 
to  harnesses  and  wagons.     (See  note  in  163). 

121 


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167-168  MANUFACTURING  COMPANIES 

167.    Depreciation— Stable      Equipment      (Reserve 

Charge). 

Debit:  at  the  close  of  each  month  with  one-twelfth 

of  the  annual  reserve  charge  for  depreciation  on  stable 
equipment,  when  monthly  profit  and  loss  statements  are 
prepared;  otherwise,  at  closing  periods,  for  the  proper 
amount,  crediting  the  proper  Reserve  for  Depreciation 
account.     (See  60  and  61  also  note  in  163). 

168.    Insurance,  Fire   and   LiabUity-Stoble  Equip- 
ment. , 
This  account  should  be  treated  according  to  one  of 

the  three  following  methods: 

(i)  Debit:  at  the  close  of  each  month  with  one- 
twelfth  of  the  annual  cost  of  liability  insurance  on  horses, 
harnesses  and  wagons,  and  with  fire  insurance  on  the 
stable   and   equipment,    crediting   the    account.    Prepaid 

Insurance.  .       v     u 

Balance  of  this  account  at  closing  periods  should 

represent  the  cost   of   this   insurance   applicable   to  the 

period. 

(2)  Debit:  with  all  invoices  received  for  insurance, 
as  above  mentioned,  crediting  Vouchers  or  Accounts 
Payable  as  the  case  may  be;  at  closing  periods  with  the 
amount  of  prepaid  insurance  applicable  to  this  account 
at  the  beginning  of  the  period  being  closed,  crediting  the 
account,  Prepaid  Expenses. 

Credit:  with  cancellations  and  refunds;  at  closing 
periods  with  the  amount  of  prepaid  insurance  applicable 
to  this  account  at  that  time  charging  the  account,  Pre- 
paid Expenses.     (See  52). 

122 


MANUFACTURING  EXPENSES 


169-I7I 


Balance  of  this  account  at  closing  periods  should 
represent   the   cost   of  this   insurance   applicable   to   the 

period. 

(3)  Debit:  at  the  time  of  opening  the  books  with 
the  amount  of  unexpired  insurance  premiums  applicable 
to   this    account;   with    all   insurance   bills    subsequently 

entered. 

Credit:  with  all  refunds  and  cancellations;  at  closing 
periods  with  the  net  amount  of  this  account  after  add- 
ing the  amount  of  the  prepaid  insurance  at  that  time, 
to  the  credit  side  of  the  account,  charging  the  account. 
Manufacturing  Expenses. 

Balance  of  this  account  at  closing  periods,  after  mak- 
ing the  above  entries,  is  a  deferred  charge  to  operation 
and  should  represent  the  unexpired  insurance  premiums 
applicable  to  this  account.     (See  note  in  163). 


169.  Stable  Expense — Proportion. 

This  account  is  to  be  kept  only  when  a  portion  of 
the  stable  expenses  are  to  be  charged  to  other  than  man- 
ufacturing departments  and  should  be  treated  in  a  similar 
manner  as  described  in  153. 

1 70.  Wages — Chauffeurs. 

Debit:  at  close  of  each  month  or  pay  period  with 
wages  of  chauffeurs,  crediting  the  account.  Accrued  Pay 
Rolls.     (See  note  in  163). 

171.  Automobile  Supplies  and  Expense. 

This  account  should  show  the  cost  of  oil,  grease,  gas- 
oline, auto  tools,  etc.,  and  be  treated  in  a  similar  manner 
as  described  in  149.     (See  note  in  163). 

123 


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172-176 


MANUFACTURING  COMPANIES 


MANUFACTURING  EXPENSES 


177 


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172.  Repairs  to  Automobiles. 

Debit:   with  the   cost  of  repairs,   as  referred  to  in 
154,  to  autos  and  auto  trucks.     (See  note  in  163). 

173.  Depreciation — ^Automobiles  (Reserve  Charge). 
Debit:  at  the  close  of  each  month  with  one-twelfth 

of  the  annual  reserve  charge  for  depreciation  on  auto- 
mobiles, when  monthly  profit  and  loss  statements  are 
prepared,  otherwise  at  closing  periods,  for  the  proper 
amount;  crediting  the  proper  Reserve  for  Depreciation 
account.     (See  60  and  61,  also  note  in  163). 

174.  Insurance,  Fire  and  Liability— Automobiles. 
This  account  should  show  the  cost  of  both  fire  and 

liabilitv  insurance  on  autos  and  auto  trucks,  and  fire 
insurance  on  garage,  and  be  treated  in  a  similar  manner 
as  described  in  168.     (See  note  in  163). 

175.  Automobile  Expense— Factory  Proportion. 

This  account  is  to  be  kept  only  when  a  portion  of 
the  automobile  expense  is  to  be  charged  to  other  than 
manufacturing  departments,  and  should  be  treated  in  a 
similar  manner  as  described  in  153. 

176.  Rent— Factory  Proportion. 

In  the  chart  of  accounts  for  a  manufacturing  business 
a  rental  proportion  account  is  found  under  each  of  the 
three  groups,  Manufacturing,  Administrative  and  Selling 
Expenses,  and  for  a  mercantile  business,  under  the  two 
groups,  Administrative  and  Selling  Expenses.  When 
the  factory  and  main  office  occupy  the   same  building, 

124 


the  proportion  of  rent  chargeable  to  each  should  be  ac- 
cording to  floor  space  or  valuation  of  floor  space. 

Debit:  with  the  portion  of  the  rent  applicable  to  the 
manufacturing  departments,  crediting  Vouchers  or  Ac- 
counts Payable  as  the  case  may  be. 

Credit:  with  revenues,  if  any,  from  sub-renting  a  por- 
tion of  the  factory. 

177.    Taxes  on  Plant  and  Stock. 

This  account  may  be  treated  according  to  one  of  the 
three  following  methods: 

(i)  Debit:  at  the  close  of  each  month  with  the  local 
taxes  applicable  to  the  month,  crediting  the  account,  Ac- 
crued Taxes. 

Balance  of  this  account  at  closing  periods  should 
represent  the  cost  of  taxes  applicable  to  the  period,  and 
should  be  closed  into  the  account.  Manufacturing  Ex- 
penses. 

(2)  Debit:  with  the  amount  of  tax  notices  or  bills 
when  received,  crediting  Vouchers  or  Accounts  Payable, 
as  the  case  may  be;  at  closing  periods  with  the  amount 
of  accrued  local  taxes  at  that  time,  crediting  the  account, 
Accrued  Items  Payable. 

Credit :  at  closing  periods  with  the  amount  of  accrued 
taxes  at  the  beginning  of  the  period  being  closed,  charg- 
ing the  account,  Accrued  Items  Payable.     (See  90). 

Balance  of  this  account  at  closing  periods  should 
represent  the  cost  of  taxes  applicable  to  the  period,  and 
should  be  closed  into  the  account  Manufacturing  Ex- 
penses. 

125 


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178-179  MANUFACTURING  COMPANIES 

Note— The  amount  of  taxes  accruing  during  the 
current  period  should  be  estimated,  if  the  levy  is  un- 
known, until  the  correct  amount  is  finally  determined, 
when  the  proper  adjustment  should  be  made. 

(3)  Debit:  with  the  amount  of  tax  notices  or  bills 
when  received,  crediting  Vouchers  or  Accounts  Payable 
as  the  case  may  be. 

Credit:  at  the  time  of  opening  the  books  with  the 
amount  of  accrued  taxes  unpaid ;  at  closing  periods  with 
the  net  amount  of  this  account  after  adding  the  amount 
of  the  accrued  taxes  unpaid  at  that  time  to  the  debit  side 
of  the  account,  charging  the  account,  Manufacturing  Ex- 
penses. 

Balance  of  this  account  at  closing  periods,  after  mak- 
ing the  above  entries,  is  a  current  liability  and  should  be 
brought  down  as  a  credit  balance. 

178.  Insurance,  Fire— Plant  and  Stock. 

This  account  should  show  the  cost  of  fire  insurance 
on  plant  and  merchandise  stocks,  and  be  treated  in  a 
similar  manner  as  described  in  168. 

179.  Insurance,  Liability— General  Factory. 

This  account  should  be  treated  in  a  similar  manner 
as  described  in  168  and  show  the  cost  of  all  liability  in- 
surance applicable  to  the  manufacturing  end  of  the  busi- 
ness, which  includes  elevator,  steam  boiler  and  general 
liability  insurance  relating  to  all  manufacturing  depart- 
ments. (This  should  not  include  insurance  on  Stable  or 
Automobile  equipment). 

126 


MANUFACTURING  EXPENSES 


180-185 


180.  Factory  Supplies  Used. 

This  account  should  show  the  cost  of  miscellaneous 
factory  supplies  used,  and  be  treated  in  a  similar  manner 
as  described  in  149. 

181.  Oil,  Waste  and  Packing. 

This  account  should  show  the  cost  of  oil,  waste  and 
packing  used,  and  be  treated  in  a  similar  manner  as 
described  in  149. 

182.  Water. 

This  account  should  show  the  cost  of  water  used  in 
manufacturing  departments  and  be  treated  in  a  similar 
manner  as  described  in  177. 

183.  Experimental  Work. 

This  account  should  show  the  cost  of  all  experimental 
work.  When  the  cost  of  any  given  experimental  job  is 
desired,  an  order  should  be  issued  to  which  all  material 
and  labor  relating  to  it  should  be  charged. 

184.  Lost  Time. 

Debit:  with  the  cost  of  all  lost  time  of  employees  in 
the  productive  departments,  due  to  various  causes  such 
as  lack  of  material,  insufficient  machinery  or  tools,  de- 
lays caused  by  repairs  to  the  power  plant,  etc. 

185.  Material  Spoiled  or  Scrapped. 

Debit:  with  the  cost  of  material  spoiled  or  scrapped 
during  the  operations  of  manufacture,  or  by  reason  of 
surplus  stock  or  obsolescence,  when  the  reserve  account, 

127 


.» I 


■* 


i86-i88 


MANUFACTURING  COMPANIES 


MANUFACTURING  EXPENSES 


189-193 


reference  48  is  not  carried;  with  the  periodical  reserve 
charge  when  a  reserve  account  is  carried. 

Credit:  with  the  sale  of  scrap.     (See  116). 

186.  Replacement  of  Defective  Material. 

Debit:  with  the  cost  of  all  gratis  replacements  for 
customers  on  account  of  defective  material  and  workman- 
ship. 

187.  Repairs  to  Factory  Stock. 

Debit:  with  the  cost  of  repairing  or  refinishing 
factory  stock. 

188.  Incoming  Transportation  Charges — Undis- 
tributed. 

In  cases  where  it  is  practicable  to  distribute  freight 
and  cartage  charges  to  the  items  purchased,  such  charges 
should  follow  the  invoice.  For  example,  if  a  car  load  of 
lumber  is  purchased  for  manufacturing  purposes,  the 
transportation  charges  as  well  as  the  lumber  itself  should 
be  charged  to  the  manufacturing  material  account  or  its 
equivalent. 

In  like  manner  the  transportation  charges  paid  on 
coal,  for  fuel,  are  frequently  more  than  the  cost  of  the 
coal  at  the  mines,  and  should  follow  the  invoice  as  a 
charge  to  the  cost  of  fuel. 

No  detailed  instructions  can  be  given  applicable  to 
all  cases  as  the  method  which  would  fit  one  case  might 
be  unsuited  to  another,  but  generally,  the  account  may 
be  treated  as  follows: 

Debit:  with  the  payment  of  all  freight  and  cartage 
charges. 

128 


Credit:  with  such  charges  distributed  with  purchase 

invoices. 

Balance  of  this  account  at  closing  periods,  if  a  manu- 
facturing business,  is  to  be  transferred  to  the  account. 
Manufacturing  Expenses;  if  a  mercantile  business,  to  the 
account,  General  Administrative  Expenses. 

189.  Telephone  and  Telegraph. 

This  account  should  show  the  cost  of  all  telephone 
and  telegraph  messages,  together  with  telephone  rental 
chargeable  directly  to  the  factory,  and  be  treated  in  a 
similar  manner  as  described  in  168. 

190.  Stationery,  Printing  and  Office  Supplies- 
Factory. 

This  account  should  show  the  cost  of  stationery  and 
office  suppHes  used  in  the  factory,  and  be  treated  in  a 
similar  manner  as  described  in  149. 

191.  Drafting  Supplies. 

This  account  should  show  the  cost  of  all  drafting 
supplies  used,  and  be  treated  in  a  similar  manner  as 
described  in  149. 

192.  Miscellaneous  Manufacturing  Expenses. 
Debit:  with  the  cost  of  all  manufacturing  expenses 

not   chargeable   to    any   other   expense    account    of    the 
Manufacturing  Expense  group. 

193.  Depreciation — Reserve  Charge. 

This  is  an  expense  account  receiving  the  charges  off- 
setting the  credit  entries  to  the  Reserve  for  Depreciation 

129 


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194 


MANUFACTURING  COMPANIES 


accounts  referred  to  in  60,  the  distinction  between  the 
two  accounts  being,  that  this  is  an  expense  account  to 
be  closed  as  other  expense  accounts  at  closing  periods, 
while  the  account  "Reserve  for  Depreciation"  is  to  be  left 
to  accumulate  and  to  be  shown  on  the  balance  sheet  as 
a  deduction  from  the  asset  account  to  which  it  relates. 
In  each  group  of  expense  accounts  will  be  found  depre- 
ciation accounts  to  which  depreciation  charges  should  be 
made,  affecting  the  asset  accounts  relating  to  the  re- 
spective groups;  that  is,  depreciation  on  fixed  assets  of 
manufacturing  departments  should  be  charged  to  the 
depreciation  account  in  the  manufacturing  group  of 
accounts;  depreciation  on  administrative  and  selling 
items  should  be  charged  to  their  depreciation  accounts  in 
the  administrative  and  selling  expense  group^  respec- 
tively. 

Debit:  at  the  close  of  each  month,  when  profit  and 
loss  statements  are  prepared  monthly,  otherwise  at  clos- 
ing periods,  with  the  reserve  charge  for  depreciation  on 
items  other  than  stable  and  auto  equipment,  relating  to 
the  manufacturing  departments  of  a  business,  crediting 
the  various  Reserve  for  Depreciation  accounts. 


W 


194.  Administrative  Expenses — Manufacturing  Pro- 
portion. 

Where  a  business  is  conducted  mainly  from  one  gen- 
eral office,  a  portion  of  certain  administrative  expenses 
is  properly  chargeable  to  the  cost  of  production,  such 
items  being  salaries  of  executive  officers  and  main  office 
employees,  postage,  legal  expense,  telephone  and  tele- 
graph, stationery  and  printing,  charities  and  donations, 


130 


MANUFACTURING  EXPENSES 


195 


etc.  This  charge  may  consist  of  an  arbitrary  amount  to 
be  made  at  the  close  of  each  month,  crediting  the  account, 
Administrative  Expenses — Proportion  Charged  to  Other 
Departments. 

195.     Rent  and  Interest  on  Plant  Equipment. 

Opinions  of  accountants  differ  in  regard  to  including 
in  manufacturing  costs  a  charge  for  interest  on  invest- 
ment, also  a  rental  charge  in  cases  where  the  company 
owns  the  real  estate  on  which  the  business  is  conducted. 

A  detailed  discussion  of  this  subject  will  not  be 
taken  up  here  as  it,  in  itself,  would  fill  a  volume  and  is 
therefore  left  to  special  works  on  manufacturing  costs. 
However,  briefly,  on  the  one  hand  it  must  be  admitted 
that  more  accurate  departmental  costs  are  obtained  by 
including  in  the  overhead  a  charge  for  interest  and  rent, 
in  proportion  to  the  valuation  of  the  investment  in  each 
department.  On  the  other  hand  bankers  frequently  ob- 
ject to  the  borrower's  statement  which  includes  such 
charges  in  inventory  valuations,  therefore  the  matter 
must  be  decided  according  to  the  conditions  and  policy 
in  each  specific  case. 


'3* 


ADMINISTRATIVE   EXPENSES 


200-203 


a 


'■(1 


ADMINISTRATIVE  EXPENSES 
MANUFACTURING  COMPANIES 

196.  This  group  of  accounts  is  intended  to  include 
only  those  expenses  relating  to  the  administrative  end  of 
the  business.  The  balances  of  the  individual  accounts  at 
closing  periods  are  to  be  closed  in  one  amount  into  the 
account,  Administrative  Expenses,  found  in  the  group 
of  accounts  headed,  "Profit  and  Loss  Costs."  Other 
entries  to  these  accounts  are  described  under  each  ac- 
count heading  as  follows : 

197.  Salaries  of  Executive  Officers. 

Debit :  at  the  close  of  each  month  or  pay  period  with 
the  salaries  of  the  President,  Treasurer,  Secretary  and 
others  classified  as  executive  officers,  crediting  the  ac- 
count, Accrued  Pay  Rolls. 

198.  Expenses — ^Executive  Officers. 

Debit:  with  all  expenses  incurred  by  executive  of- 
ficers, not  properly  chargeable  to  other  expense  accounts, 
crediting  Vouchers  or  Accounts  Payable  or  the  individual 
accounts  of  executive  officers,  as  the  case  may  be. 

199.  Directors'  Fees  and  Expenses. 

Debit:  with  compensation  to  directors  for  services 


rendered,  also  with  all  expense  incurred  by  them,  credit- 
ing Vouchers  or  Accounts  Payable  as  the  case  may  be. 

200.  Salaries  of  Main  Office  Employees. 

Debit:  at  the  close  of  each  month  or  pay  period  with 
the  salaries  of  bookkeepers,  stenographers,  filing  clerks 
and  others  whose  services  are  devoted  to  the  administra- 
tive end  of  the  business,  crediting  the  account,  Accrued 
Pay  Rolls. 

201.  Salaries — Miscellaneous. 

Debit:  with  all  salaries  of  employees  connected  with 
the  administrative  end  of  the  business  which  are  not 
properly  chargeable  to  any  other  account,  crediting  the 
account,  Accrued  Pay  Rolls. 

202.  Stationery,  Printing  and  Office  Supplies. 

This  account  should  show  the  cost  of  all  stationery 
in  the  form  of  accounting  books,  invoices,  statements  and 
other  stationery  used  in  the  accounting  department,  also 
with  all  office  supplies  such  as  pencils,  erasers,  ink,  ink- 
wells, etc.,  and  be  treated  in  a  similar  manner  as  described 
in  149. 

203.  Postage — General. 

This  account  should  show  the  cost  of  all  postage, 
including  stamps  and  stamped  envelopes  used  in  the  ad- 
ministrative department  of  the  business,  and  be  treated 
in  a  similar  manner  as  described  in  149.  It  will  be 
noticed  that  there  is  also  an  account  with  postage  in  the 
manufacturing    and    selling    expense    groups    to    which 


132 


133 


'n: 
111 


i'.' 


204-207 


MANUFACTURING  COMPANIES 


M 


[i 


postage,    applicable    to    those    departments, 
charged  as  purchased,  when  possible. 


should    be 


204.  Telephone  and  Telegraph. 

This  account  should  show  the  cost  of  telephone  and 
telegraph  expense  applicable  to  the  administrative  de- 
partment of  the  business,  and  be  treated  in  a  similar  man- 
ner as  described  in  149. 

205.  Water  and  Ice. 

Debit:  with  the  cost  of  all  water  and  ice,  crediting 
Vouchers  or  Accounts  Payable  as  the  case  may  be. 

206.  Rent— Office  (Proportion). 

Debit:  with  the  portion  of  rent  applicable  to  the 
administrative  department  of  the  business,  crediting 
Vouchers  or  Accounts  Payable  as  the  case  may  be.     (See 

176). 

Credit:  with  the  revenues  from  subrenting  any  por- 
tion of  the  administrative  department. 

207.  Heat  and  Light  (Proportion). 

Debit:  at  the  close  of  each  month,  if  profit  and  loss 
statements  are  prepared  monthly,  otherwise  at  closing 
periods,  with  the  portion  of  heat  and  light  expense  appli- 
cable to  the  administrative  department  of  the  business, 
crediting  the  account.  Heat,  Light  and  Power— Propor- 
tion in  the  manufacturing  expense  group.  In  some  cases 
an  arbitrary  charge  is  made,  based  on  the  number  of 
cubic  feet  in  each  department,  while  in  others  an  actual 
distribution  of  light  may  be  made  from  meter  readings, 
in  which  event  this  account  may  be  charged  direct,  credit- 

134 


ADMINISTRATIVE   EXPENSES 


208-211 


ing  the  account,  Vouchers  or  Accounts  Payable  as  the 
case  may  be. 

208.  Repairs  to  Main  Office  Furniture  and  Fixtures. 
Debit:  with  the  cost  of  all  repairs,  as  referred  to  in 

154,  to  items  classified  as  main  office  furniture  and  fix- 
tures, such  as  desks,  chairs,  typewriters,  adding  machines, 
duplicating  devices,  etc. 

209.  Depreciation— Main  Office  Furniture  and  Fix- 

tures  (Reserve  Charge). 

Debit:  at  the  close  of  each  month,  when  profit  and 
loss  statements  are  prepared  monthly,  otherwise  at 
closing  periods,  with  the  reserve  charge  for  depreciation 
on  items,  other  than  automobiles,  included  in  the  admin- 
istrative department  of  the  business,  crediting  the  proper 
Reserve  for  Depreciation  accounts. 

2X0.  Repairs  and  Expense — Main  Office  Automo- 
biles. 

Debit:  with  the  cost  of  all  repairs  and  other  ex- 
penses, exclusive  of  depreciation,  relating  to  automobiles 
used  in  the  administrative  department. 

211.  Depreciation— Main  Office  Automobiles  (Re- 
serve Charge). 

Debit:  at  the  close  of  each  month,  when  profit  and 
loss  statements  are  prepared  monthly,  otherwise  at  clos- 
ing periods,  with  the  reserve  charge  on  automobiles  used 
in  the  administrative  department  of  the  business,  credit- 
ing the  account.  Reserve  for  Depreciation — ^Automobiles. 

135 


I 


■f  i 


f 


<iS 


212-216 


MANUFACTURING  COMPANIES 


212.  Charities  and  Donations — (Proportion). 

This  account,  as  the  title  impHes,  should  show  the 
amount  of  expenditures  for  charities  and  donations,  ap- 
plicable to  the  administrative  department. 

213.  Traveling  Expenses  (Other  than  Selling). 
Debit:   with   all   traveling  expenses   relating  to  the 

administrative  department  of  the  business,  crediting  the 
account  of  the  individual  to  whom  expense  money  was 
advanced,  when  handled  as  described  in  40.  (See  note 
in  225). 

214.  Indemnity  Bonds — Executive  Officers  and  Of- 
fice Employees. 

This  account  should  show  the  cost  of  indemnity 
bonds  of  all  employees  whose  services  are  rendered  to 
the  administrative  department,  and  be  treated  in  a  similar 
manner  as  described  in  168. 

215.  Insurance — Main  Office  Furniture  and  Fix- 
tures. 

This  account  should  show  the  cost  of  insurance  on 
main  office  furniture  and  fixtures,  and  be  treated  in  a 
similar  manner  as  described  in  168. 

2x6.    Taxes — State  and  Federal. 

The  above  title  embraces  such  taxes  as  the  corpora- 
tion state  tax  and  the  income  tax.  The  former,  at  cer- 
tain times  of  the  year,  may  be  a  prepaid  amount  while 
at  other  times,  an  accrued  unpaid  amount,  depending 
upon  the  time  of  the  year  in  which  the  tax  is  paid  as  it 
varies  in  different  states.    The  latter  is  an  accrued  unpaid 

136 


ADMINISTRATIVE  EXPENSES 


217-218 


amount,  which  can  only  be  estimated  until  the  close  of 
the  period,  when  it  may  be  accurately  determined  and 
adjusted. 

This  account  should  show  the  cost  of  such  taxes  as 
above  mentioned,  chargeable  against  the  administrative 
department  of  the  business,  and  be  treated  in  a  similar 
manner  as  described  in  168  when  prepaid,  and  177  when 
accrued  unpaid. 

217.  Legal  Expense. 

Debit:  with  the  cost  of  all  legal  services  and  ex- 
penses, except  those  which  are  incurred  at  the  time  of 
organizing  a  company  and  those  relating  to  patents, 
which  may  be  properly  charged  to  the  accounts.  Organ- 
ization Expense  and  Patents,  respectively. 

218.  Doubtful  Accounts  (Reserve  Charge). 

This  is  an  expense  account  receiving  the  charges  off- 
setting the  credit  entries  to  the  account,  Reserve  for 
Doubtful  Accounts,  referred  to  in  39.  The  distinction 
between  the  two  accounts,  is  that  this  is  an  expense  ac- 
count to  be  closed  as  other  expense  accounts  at  closing 
periods,  while  the  account,  Reserve  for  Doubtful  Ac- 
counts is  left  to  accumulate  and  be  shown  on  the  balance 
sheet  as  a  deduction  from  the  account  to  which  it  relates. 

Debit:  at  the  close  of  each  month,  when  profit  and 
loss  statements  are  prepared  monthly,  otherwise  at  clos- 
ing periods,  with  a  certain  percent  of  the  sales,  based  on 
the  previous  years*  experience  of  losses  from  uncollect- 
ible accounts,  crediting  the  account.  Reserve  for  Doubt- 
ful Accounts. 

137 


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ir  '1 


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219-221 


MANUFACTURING  COMPANIES 


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219.  Cash  Over  and  Short. 

Debit:  with  all  cash  shortages  which  cannot  be  ac- 
counted for  in  the  daily  balancing  of  cash. 

Credit:  with  all  cash  overs. 

Note — If,  at  closing  periods,  this  account  shows  a 
credit  balance,  it  should  be  transferred  to  the  account, 
Profit  and  Loss,  and  shown  on  the  profit  and  loss  state- 
ment under  the  caption  "Other  Revenues." 

220.  Incidental  Administrative  Expenses. 

Debit:  with  the  cost  of  miscellaneous  expense  items 
which  are  not  properly  chargeable  to  other  accounts  of 
the  administrative  expense  group. 

221.  Administrative  Expense,  Proportion  Charged 
to  Other  Departments. 

Credit:  with  such  proportion  of  the  administrative 
expense  accounts,  as  is  chargeable  to  other  departments. 

Balance  of  this  account  at  closing  periods  should  be 
closed  into  the  account,  Administrative  Expenses,  shown 
in  the  group  of  accounts  under  Profit  and  Loss  Costs. 


138 


SELLING  EXPENSES 
MANUFACTURING  COMPANIES 

222.  This  group  of  accounts  is  intended  to  include 
only  those  expenses  relating  to  the  selling  department 
of  the  business.  The  balances  of  the  individual  accounts 
at  closing  periods  are  to  be  closed  in  one  amount  into 
the  account,  Selling  Expenses,  found  in  the  group  of 
accounts  headed  "Profit  and  Loss  Costs."  Other  entries 
to  these  accounts  are  described  under  each  account  head- 
ing as  follows: 

223.  Salaries  of  Traveling  Salesmen. 

Debit:  this  account  at  the  close  of  each  month  or  pay 
period  with  the  salaries  of  traveling  salesmen,  crediting 
the  account,  Accrued  Pay  Rolls. 

Note — In  cases  where  traveling  salesmen  receive 
their  salaries  at  various  intervals  instead  of  receiving 
each  month's  salary  at  regular  pay  periods,  a  personal 
account  should  be  kept  among  the  sundry  debtors  with 
each  salesman,  to  which  should  be  charged  all  payments 
on  account  of  salary.  At  the  close  of  each  month  the 
personal  account  should  be  credited  with  the  salary  for 
the  month,  charging  the  account,  Accrued  Pay  Rolls. 

139 


r  ' 


}.      ti 


224-228 


MANUFACTtTRING  COMPANIES 


SELLING   EXPENSES 


229-232 


224.  Commissions — Traveling  Salesmen. 

Debit:  at  the  close  of  each  month  with  prospective 
commissions  which  may  be  allowed  salesmen  and  agents, 
on  sales  for  the  month,  crediting  the  account,  Accrued 
Commissions,  as  described  in  89. 

225.  Traveling  Expenses— Traveling  Salesmen. 
Debit:  with  the  expenses  of  traveling  salesmen  as 

expense  reports  are  rendered,  crediting  the  salesman's 
personal  account  to  which  all  cash  advanced  for  expenses 
should  be  charged. 

Note — ^A  personal  account  should  be  kept  with  each 
traveling  salesman,  to  which  should  be  charged  all  cash 
advanced  for  traveling  expenses  and  remain  so  charged 
until  an  itemized  statement  of  his  expenses  is  rendered 
by  him,  at  which  time  the  account,  Traveling  Expenses 
— Salesmen,  should  be  charged  and  the  salesman's  per- 
sonal account  credited,  the  balance  of  the  account  rep- 
resenting cash  advanced,  to  be  accounted  for. 

226.  Indenmity  Bonds — Salesmen. 

This  account  should  show  the  cost  of  salesmen's  in- 
demnity bonds,  and  be  treated  in  a  similar  manner  as 
described  in  168. 


or 


227.  Entertainment. 
Debit:  with  expenses  of  entertaining  customers, 

the  company's  own  traveling  salesmen. 

228.  Salaries  of  Clerks  (Selling). 

When  a  manufacturing  concern  maintains  a  retail 

140 


selling    department    on    a    limited    scale,    this    account 

should  be  carried. 

Debit:  at  the  close  of  each  month  or  pay  period  with 
salaries  of  clerks,  crediting  the  account.  Accrued  Pay 
Rolls.  ^ 

229.  Advertising — Periodicals. 

This  account  should  show  the  cost  of  advertising  in 
magazines,  newspapers,  programs,  etc.,  and  be  treated  in 
a  similar  manner  as  described  in  168. 

230.  Advertising — Literature. 

This  account  should  show  the  cost  of  catalogs  and 
circulars  used,  and  be  treated  in  a  similar  manner  as 
described  in  149. 

231.  Advertising — Miscellaneous. 

When  advertising  expense  is  subdivided  into  accounts 
with  Periodicals,  Literature,  etc.,  this  account  should 
include  all  advertising  expense  that  is  not  chargeable  to 
other  advertising  accounts.  When  the  advertising  of  a 
business  is  of  small  cost  and  therefore  a  subdivision  of  the 
accounts  is  considered  unnecessary,  advertising  of  every 
description  may  be  included  in  this  account,  and  should 
be  treated  in  a  similar  manner  as  described  in  149. 

232.  Advertising — Expositions. 

This  account  should  show  the  cost  of  exhibition 
expenses  at  shows,  fairs,  etc.,  and  be  treated  in  a  similar 
manner  as  described  in  168. 

141 


ill 


)• ' 


Ik 


233-237 


MANUFACTURING  COMPANIES 


233.  Replacement  of  Merchandise — Gratis. 

Debit:  with  the  cost  of  repairs  and  replacement  of 
all  merchandise,  gratuitously  for  customers,  when  the 
chief  object  of  such  replacement  is  the  promotion  of  sales. 
(This  account  should  not  be  charged  with  merchandise 
replaced  on  account  of  its  being  defective).     (See  186). 

234.  Rent — Selling  Department  (Proportion). 
Debit:   with   the   portion   of   rent   applicable   to   the 

selling  department  of  the  business,  crediting  Vouchers  or 
Accounts  Payable  as  the  case  may  be.     (See  176.) 

Credit:  with  the  revenues  from  subrenting  any  por- 
tion of  the  selling  department. 

235.  Heat  and  Light — Proportion. 

This  account  should  show  the  cost  of  heat  and  light 
expense  applicable  to  the  selling  department  of  the  busi- 
ness, and  be  treated  in  a  similar  manner  as  described  in 
207.  ^ 

236.  Salaries— Office  Employees  (Selling  Depart- 
ment). 

Debit:  at  the  close  of  each  month  or  pay  period  with 
the  salaries  of  office  employees  whose  attention  is  given 
to  the  selling  branch  of  the  business,  crediting  the 
account,  Accrued  Pay  Rolls. 

237.  Stationery,  Printing  and  Office  Supplies  — 
Selling  Department. 

This  account  should  show  the  cost  of  stationery, 
printing  and  office  supplies  used  in  the  selling  department, 
and  be  treated  in  a  similar  manner  as  described  in  149. 

142 


SELLING   EXPENSES 


238-241 


Note — If  no  accurate  record  is  kept  of  these  items, 
used  by  the  seUing  department,  they  may  be  included  in 
the  account.  Stationery,  Printing  and  Office  Supplies  in 
the  administrative  expense  group,  and  an  entry  made  for 
an  arbitrary  amount  charging  the  account,  Administrative 
Expenses— Selling  Proportion,  in  the  selling  expense 
group;  and  crediting  the  account.  Administrative  Ex- 
penses, Proportion  to  other  departments. 

238.  Postage — Selling  Department. 

This  account  should  show  the  cost  of  all  postage 
stamps  and  stamped  envelopes  used  in  the  selling  depart- 
ment, and  be  treated  in  a  similar  manner  as  described  in 
149.     (Also  see  Note  in  237). 

239.  Telephone  and  Telegraph   (Proportion). 
This  account  should  show  the  cost  of  the  proportion 

of  telephone  and  telegraph  expenses  applicable  to  the  sell- 
ing department,  and  be  treated  in  a  similar  manner  as 
described  in  168.     (Also  see  Note  in  237). 

240.  Commercial  Agency  Subscriptions. 

This  account  should  show  the  cost  of  the  services  of 
commercial  agencies  such  as  furnished  by  Bradstreet 
and  Dun,  and  should  be  treated  in  a  similar  manner  as 
described  in  168. 

241.  Depreciation     Selling     Department     (Reserve 

Charge). 

Debit:  at  the  close  of  each  month,  when  profit  and 
loss  statements  are  prepared  monthly,  otherwise  at  clos- 
ing periods,  with  the  reserve  charge  for  depreciation  on 

143 


,4 


242-245 


MANUFACTURING  COMPANIES 


office  and  store  furniture  and  fixtures  in  the  selling  de- 
partment, together  with  depreciation  on  travelingmen's 
equipment,  such  as  trunks,  sample  cases,  etc.,  crediting 
the  proper  reserve  for  depreciation  accounts. 

Note — In  regard  to  travelingmen's  equipment,  a 
physical  inventory  is  preferable  in  most  cases  to  a  reserve 
charge,  to  be  treated  in  a  similar  manner  as  described  in 
160. 

242.  Transportation  Charges — Outgoing  Shipments. 
Debit:  with  freight  and  cartage  charges  on  all  out- 
going shipments. 

243.  Stable  and  Automobile  Expense  (Proportion 
en  Outgoing  Shipments). 

Debit:  with  the  proportion  of  stable  and  auto  ex- 
pense applicable  to  outgoing  shipments,  crediting  the 
accounts.  Stable  Expense — Proportion  and  Automobiles 
Factory — Proportion,  respectively.  This  charge  may  be 
an  estimated  amount  based  on  the  comparative  amount 
of  trucking  in  the  manufacturing  and  selling  departments. 

244.  Shipping  Labor. 

Debit:  at  the  close  of  each  month  or  pay  period  with 
wages  of  employees  in  the  shipping  department,  crediting 
the  account.  Accrued  Pay  Rolls. 

245.  Shipping  Supplies  and  Expense. 

This  account  should  show  the  cost  of  all  shipping 
crates,  lumber,  wrapping  paper,  twine,  etc.,  used  in  the 
shipping  department,  and  be  treated  in  a  similar  manner 
as  described  in  149. 

144 


SELLING   EXPENSES 


246-247 


Note — In  certain  lines  of  manufacturing  the  cost  of 
the  package  containing  the  manufactured  product  is  prop- 
erly chargeable  to  the  cost  of  production,  for  example, 
pails  and  containers  used  in  connection  with  the  manufac- 
ture of  paint,  while  the  crates  or  boxes  in  which  the  indi- 
vidual packages  are  shipped  may  be  considered  to  consti- 
tute shipping  supplies.  The  method  of  charging  such 
items  depends  upon  the  conditions  in  each  specific  case. 

246.  Incidental  Selling  Expenses. 

Debit:  with  the  cost  of  miscellaneous  expense  items 
which  are  not  properly  chargeable  to  other  accounts  of 
the  selling  expense  group. 

247.  Administrative  Expenses — Selling  Proportion. 

This  account  should  be  treated  in  a  similar  manner 
as  described  in  194,  and  should  include  such  a  portion  of 
the  administrative  expenses  as  may  be  applicable  to  the 
selling  department. 


145 


Ill: 

ifiil 


i.'t 


I 


I 


PART  3 


ACCOUNTS 
FOR  MERCANTILE  COMPANIES 


r 


- 1 


il 


248.  CHART  OF  ACCOUNTS 

FOR  MERCANTILE  COMPANIES 

(See  17  and  249) 

♦ASSETS. 

Acct.  No.  Ref-  No. 

Current  Assets   •  7 

I — Imprest    Cash   Fund ^7 

2 — Cashier's  Change 28 

3 — Cash  on  Hand  Undeposited 29 

4 — Cash  in  Banks 30 

5— 

6-^ • 

&— Stocks  and  Bonds  of  Other  Companies 32 

^— 

10 — Mortgages  Receivable    33 

II — 

12 — Notes  Receivable  34 

13 — Notes  Receivable  Discounted 35 

14 — Reserve  for  Doubtful  Notes 3^ 

15 — Accrued  Interest — Items  Receivable 37 

16—. 

17 — Accounts  Receivable — C.  O.  D 250 

18 — ^Accounts  Receivable — Customers 38 

19 — Reserve  for  Doubtful  Accounts — Customers 39 

20 — Accounts  Receivable — Sundry  Debtors 40 

21 — Reserve  for  Doubtful  Accounts — Sundry  Debtors 41 

22 — 

23 — 

24 — Consignments  to  Others 42 

25 — 

26 — Inventory  of  Merchandise — Branches    43 

27 — Inventory  of  Merchandise—Warehouse 252 

28 — Inventory  of  Merchandise — Departments   253 

29 — Reserve  for  Depreciation  of  Merchandise  Stocks 254 

30 — 

*Note.  Reserve  accounts  are  here  listed  among  the  assets  owing 
to  the  fact  that  they  are  shown  on  the  balance  sheet  as  a  deduction  from 
the  accounts  to  which  they  relate. 

149 


■  A 


■      I 


248  MERCANTILE  COMPANIES 

Acct.  No.  R«f-  No. 

31— 

32 — 

33 — Treasury  Stock— Preferred SO 

34 — .Treasury  Stock — Common    5^ 

Deferred  Charges  to  Operation /  V  *  V  '  •• ;      ^^ 

(Itemize  according  to  the  requirements  of  the  busmess.; 

Fixed  Assets   J 

45 — Grounds  03 

46— Buildings  and  Building  Fixtures : '  ';,•  v, ;:  * "       ^ 

47__Reserve    for    Depreciation  —  Buildings    and    Buildmg 

Fixtures   "5 

48 — Store  Furniture  and  Fixtures \'^"     ^^^ 

49— Reserve    for    Depreciation— Store    Furniture    and    Fix- 
tures    °^oi 

50 — Alterations  and  Improvements 250 

51 — 

52— Office   Furniture  and   Fixtures \"^"       ^^ 

=;^— Reserve   for   Depreciation— Office    Furniture   and   Fix- 

tures   60-61 

54— Stable   Equipment    •  •  •  • : 7i 

55— .Reserve   for  Depreciation— Stable   Equipment 00-61 

56 — Automobiles •  • a^^k 

57 Reserve  for   Depreciation — ^Automobiles So 

S8— Branch  Office— Furniture  and  Fixtures •       78 

50— Reserve  for  Depreciationf— Branch  Office  Furniture  and 

Fixtures ^-^^ 

60— 

61— 

62— 

63— ;: 

64— Sinking  Fund  gj 

65 — Other   Investments    °o 

Intangible  Assets  ^ 

70 — Patents %\ 

71— Good   Will    ll 

72 — Organization  Expense   *** 

73— 

LIABILITIES. 

o 

Current  Liabilities  ° 

gi — Notes    Payable — ^Loans °4 

82 Notes  Payable — Purchase  Creditors  85 

83— Accounts  Payable— Purchase   Creditors    |o 

84— Accounts    Payable— Sundry    Creditors    »7 

85— ; ; 

86 QQ 

87— Accrued  Pay  Rolls ^ 

88— Accrued  Commissions •  °9 

89— Other  Accrued  Items  Payable /  V  *  V    *. <  ^ 

(Itemize  according  to  the  requirements  of  the  business.) 

Fixed  Liabilities  ^ 

loi — Mortgages  Payable   ^ 

102 — Bonds  Payable   93 


CHART   OF   ACCOUNTS  248 

Ref.  No. 
Acct.  No. 

103 — 

CAPITAL  OR  NET  WORTH  9 

no-Capital  Stock,  Preferred-Authorized   95 

iii--Capital  Stock,  Preferred— Unissued   I'JIJ- U:*^:      ^^ 

(This  account  is  listed  here,  to  be  shown  as  a  deduction 
from  Authorized  Preferred  Capital  Stock.) 

112— Capital  Stock,   Common— Authorized    9o 

in— Capital  Stock,  Common— Unissued  •  •  •  •  •  •  •  •  •       ^ 

^     (This  account  is  listed  here,  to  be  shown  as  a  deduction 
from  Authorized  Common  Capital  Stock.) 

114— Subscribed  Capital  Stock ;•••      99 

115— Subscriptions  to  Capital  Stock  .•••••••• till:* '^'I 

(This  account  to  be  shown  on  the  balance  sheet  as  a 
^  deduc?k>n  from  Subscribed  Capital  Stock,  the  differ- 
ence being  the  amount  advanced  by  subscribers  for 
stock  sold  on  the  instalment  plan.)  .  ,  .  . 
(If  not  incorporated,  each  Partner's  Capital  or  Invest- 
ment  account  is  to  be  shown  here  in  place  of  the 
Capital  Stock  Accounts.)       ,  ^      ,  __- 

1 16— Cumulative  Dividends— Preferred  Stock  105 

117— Dividends— Common  Stock    « 

118— Reserve  for  Sinking  Fund    

l^Reserve  for  Working*  Capital '  (When  "stock  is  donated 

to  company)  '  "     ^^^ 

1211 — ^Surplus  jjj 

122 — Profit  and   Loss 

PROFIT  AND  LOSS  REVENUES  257 

ni— Sales  (By  departments)  ^^ 

132— 

133— 

134— ;;;!;';!''**!^*ii  !'**•■'• 

136— Sales   Miscellaneous    "| 

137— Cash   Sales j„ 

1 3g__Revenues— Branches   ^^ 

139 — Rents    Earned    • 

140— Cash  Discounts   Earned    * 

141— Interest  Earned    

142— 

145- ••    ••• iii 

144— Miscellaneous   Earnings    *  •» 

PROFIT  AND  LOSS  COSTS  aS7 

161— Merchandise  Purchases  (By  departments) 259 

162— Consigned   Merchandise    • ^^ 

i63^Cost  of  Sales  (By  departments)   200 

164— Administrative  Expenses  -J 

165— Selling  Expenses    .... . . .  •  •  • ^ 

166— Cash  Discounts  Allowed  Others J3^ 

167— Interest  on  Items  Payable  ^^^ 


il 


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m 


248 


MERCANTILE  COMPANIES 


Acct.  No.  Rcf.  No. 

168 — Extinguishment  of  Patents   134 

169 — Extinguishment  of  Organization  Expense 135 

GENERAL  ADMINISTRATIVE  EXPENSES  196 

181 — Salaries  of  Executive  Officers 197 

182 — Expenses — Executive  Officers   198 

183 — Directors'  Fees  and  Expenses  199 

184 — Salaries  of  Main  Office  Employees   200 

185 — Salaries — Miscellaneous 201 

186 — Stationery,  Printing  and  Office  Supplies — General 202 

187 — Postage — General    203 

188 — Telephone  and  Telegraph   (Proportion)    204 

189 — ^Water  and  Ice  205 

190 — Rent    206 

191 — Heat  and  Light  (Proportion)   261 

192 — Repairs  to  Main  Office  Furniture  and  Fixtures 208 

193 — Depreciation — Main  Office  Furniture  and  Fixtures  (Re- 
serve Charge)    209 

194 — Repairs  and  Expenses) — Main  Office  Automobiles 210 

195 — Depreciation — Main      Office      Automobiles      (Reserve 

Charge) 211 

196 — ^Charities  and  Donations   212 

197 — Traveling  Expenses  (Other  than  selling) 213 

198 — Indemnity      Bonds — Executive     Officers     and      Office 

Employees    214 

199 — Insurance — Main  Office  Furniture  and  Fixtures 215 

2oo^Taxes — State  and  Federal 216 

201 — Legal   Expense    217 

202 — Doubtful  Accounts  (Reserve  Charge)   218 

203 — Cash  Overs  and  Shorts    219 

204 — Stable   and   Auto    Expense    (Proportion    on    Incoming 

Merchandise)    262 

20s — Incoming  Transportation  Charges! — Undistributed   188 

206 — ', 


207 — . 
208 — . 
209 — . 

21 


21 1 — Incidentals    220 

212 — Administrative    Expense    (Proportion   charge   to   other 

departments) 221 

SELLING  EXPENSES  222 

221 — Salaries  of  Traveling  Salesmen   223 

222 — Commissions — Traveling  Salesmen   224 

223 — Traveling  Expenses — Traveling  Salesmen 225 

224 — Indemnity  Bonds — Traveling  Salesmen 226 

225 — Entertainment    227 

2^ — ^Salaries  of  Office  Employees   (Selling  Department) . .  236 
227 — Stationery,  Printing  and   Office   Supplies   (Selling  De- 
partment)      237 

228 — Postage   (Selling  Department)    238 

229 — Telephone  and  Telegraph  (Proportion)    239 


CHART  OF  ACCOUNTS 


Acct.  No. 


248 


Ref.  No. 


230 — Commercial  Agency  Subscriptions   240 

231 — Salaries  of  Clerks  (Selling) 263 

232 — Salaries — Miscellaneous   264 

233 — Advertising,    Periodicals    229 

234 — Advertising,   Literature    230 

235 — Advertising,    Miscellaneous    231 

236 — Rent     (Proportion) 234 

237 — Heat  and  Light  (Proportion)    265 

238 — Elevator  Wages  and  Expense  266 

239 — Insurance — Liability    267 

240 — Insurance — Fire  on  Merchandise  Stocks,  Buildings  and 

Building   Fixtures    268 

241 — Taxes — Merchandise    Stocks,    Buildings    and    Building 

Fixtures    269 

242 — Repairs  to  Buildings  and  Building  Fixtures 270 

243 — Repairs  to  Store  Furniture  and  Fixtures 270 

244 — Depreciation  (Reserve  Charge)    241' 

245 — Extinguishment  of  Alterations  and  Improvements 271 

246 — Departmental    Supplies    272 

247 — Water  and  Ice    205 

248 — ^Transportation  Charges   (Outgoing  Shipments)    242 

249 — Shipping   Labor    244 

250 — Shipping  Supplies  and  Expense   245 

251 — Merchandise   Scrapped   273 

252 — Incidentals    ,.  246 

253 — Administrative   Expenses   (Selling  Proportion) 247 

Stable  Expenses. 

254 — Wages — Drivers    163 

255 — Stable  Supplies  and  Expense    164 

256 — Feed  and  Bedding  165 

257 — Repairs  to  Stable  Equipment   166 

2587— Depreciation — Stable  Equipment  (Reserve  Charge) 167 

259 — Insurance — Fire  and  Liability 168 

260 — Stable  Expense — Proportion    274 

Automobile  Expenses. 

261 — Wages — Chauffeurs    170 

262 — Automobile  Supplies  and   Expense 171 

263 — Repairs  to  Automobiles    172 

264 — Depreciation — Automobiles  (Reserve  Charge)    173 

265 — Insurance — Fire  and  Liability  174 

266— Automobile  Expense — Proportion   275 


153 


1' ' 


CURRENT  ASSETS 


251-252 


11  "i 


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kl 


i 

w 

nil 


CURRENT  ASSETS 
MERCANTILE  COMPANIES 

249.     Comparison  of  Accounts  for  Manufacturing  and 
Mercantile  Companies. 

Comparing  the  chart  of  accounts  for  manufacturing 
companies  with  that  for  mercantile  companies,  it  will  be 
seen  that  the  principal  difference  between  them  is  that 
the  former  requires  plant  accounts,  production  accounts 
and  manufacturing  expense  accounts,  not  found  in  the 
chart  of  accounts  for  the  latter.  With  these  exceptions 
the  accounts  of  the  two  different  classes  of  business  are 
generally  similar  to  each  other,  therefore  the  instructions 
previously  written  relating  to  the  accounts  for  manufac- 
turing companies,  references  26  to  247  inclusive,  are  gen- 
erally applicable  to  mercantile  companies  with  the  follow- 
ing exceptions : 

250.    Accounts  Receivable — C.  O.  D. 

Debit:  at  the  time  of  opening  books  with  the  total  of 
uncollected  C.  O.  D.  items;  at  the  close  of  each  month 
with  the  total  C.  O.  D.  sales,  ascertained  from  the  sales 

summary. 

Credit:  at  the  close  of  each  month  with  the  C.  O.  D. 

cash  collections  and  items  returned. 

154 


Balance  of  this  account  is  a  current  asset  and  should 
represent  the  net  total  of  outstanding  C.  O.  D.  items. 

Note — ^This  is  a  controlling  account  of  the  individual 
items  carried  on  the  C.  O.  D.  Register.  There  are  various 
methods  of  recording  these  transactions,  the  general  prin- 
ciple of  which  is  as  follows :  The  amount  of  each  C.  O.  D. 
sale  is  entered  in  numerical  order,  on  what  is  termed  a 
C.  O.  D.  Register;  as  collections  are  made,  or  as  items 
are  returned,  the  proper  credit  is  given,  with  the  result 
that  the  balance  in  the  register  should  equal  the  controll- 
ing account  in  the  general  ledger. 

251.  Pricing  Inventories. 

In  order  to  show  uniform  and  accurate  results  from 
operation  and  to  facilitate  the  verification  of  merchandise 
stocks,  inventories  should  be  priced  at  cost.  The  term 
cost,  as  applied  to  inventories  of  mercantile  companies, 
should  include  the  purchase  invoice  price  together  with 
the  cost  of  transportation  charges  and  handling.  In  case 
the  actual  value  at  the  time  of  taking  inventories  is  less 
than  cost,  the  difference  should  be  taken  care  of  in  the 
account.  Reserve  for  Depreciation  of  Merchandise,  and 
shown  on  the  balance  sheet  as  a  deduction  from  the  cost 
value,  extending  the  net  value  at  which  the  merchandise 
is  to  be  carried,  further  illustrated  in  254,  Reserve  for 
Depreciation — Merchandise. 

For  pricing  inventories  of  Manufacturing  Companies 
see  278. 

252.  Inventory  of  Merchandise — ^Warehouse. 

This  account  is  used  only  when  a  perpetual  inventory 
record  is  kept. 

155 


« 


253 


MERCANTILE  COMPANIES 


CURRENT   ASSETS 


253 


ri 


Debit:  at.  the  time  of  opening  books  with  the  cost  of 
merchandise  on  hand  in  the  warehouse;  at  the  close  of 
each  month  with  the  cost  of  merchandise  purchased,  and 
delivered  to  warehouse,  crediting  Vouchers  or  Accounts 
Payable  as  the  case  may  be ;  with  the  cost  of  merchandise 
transferred  to  the  warehouse  from  departments,  crediting 
the  account,  Inventory  of  Merchandise — Departments. 

Note — When  freight  and  cartage  charges  on  mer- 
chandise purchases  follow  the  invoice  as  described  in  188, 
and  are  included  in  the  amounts  entered  on  the  stock  rec- 
ords, they  should  be  charged  to  this  account. 

Credit:  at  the  close  of  each  month  with  the  cost  of  all 
merchandise  withdrawn  from  the  warehouse  and  deliv- 
ered to  departments,  charging  the  account,  Inventory  of 
Merchandise — Departments;  with  the  cost  of  discarded 
merchandise,  charging  the  account,  Merchandise  Scrapped 
or  the  reserve  account  if  one  is  kept;  with  the  cost  of 
merchandise  returned  to  purchase  creditors,  charging 
Vouchers  or  Accounts  Payable,  as  the  case  may  be. 

Balance  of  this  account  is  a  current  asset  and  should 
represent  the  cost  of  merchandise  in  the  warehouse,  which 
should  agree  with  the  aggregate  of  the  Stock  Records, 
when  kept. 

253.    Inventory  of  Merchandise — Departments. 

This  account  should  be  subdivided  according  to 
departments,  keeping  a  separate  account  for  each,  and  be 
handled  according  to  one  of  the  three  following  methods : 

(i)     When  a  perpetual  inventory  is  kept. 

Debit:  at  the  time  of  opening  books  with  the  cost 
value   of  merchandise  on  hand   in  departments;   at   the 

156 


close  of  each  month  with  the  cost  of  merchandise  received 
from  the  warehouse,  crediting  the  account,  Inventory  of 
Merchandise — Warehouse,  or  with  merchandise  purchases 
when  delivered  directly  to  departments  as  purchased, 
crediting  Vouchers  or  Accounts  Payable,  as  the  case  may 
be;  with  the  cost  of  merchandise  returned  by  customers, 
crediting  the  account,  Cost  of  Sales.    (See  Note  in  252). 

Credit:  at  the  close  of  each  month  with  the  cost  of 
merchandise  sold,  charging  the  account,  Cost  of  Sales; 
with  the  cost  of  merchandise  returned  to  warehouse  stock, 
charging  the  account,  Inventory  of  Merchandise — Ware- 
house :  with  the  cost  of  merchandise  returned  to  purchase 
creditors  when  purchases  are  charged  directly  to  depart- 
ments, charging  Vouchers  or  Accounts  Payable;  with  the 
cost  of  merchandise  scrapped,  charging  the  account  Mer- 
chandise Scrapped,  or  the  reserve  account  if  one  is  kept. 

Balance  of  this  account  is  a  current  asset  and  should 
represent  the  cost  value  of  stock  on  hand  in  departments, 
which  should  agree  with  Stock  Records,  when  kept. 

(2)     When  a  perpetual  inventory  is  not  kept. 

This  account  is  carried  for  the  purpose  of  showing 
the  value  of  merchandise  on  hand  at  the  beginning  of 
each  period,  and  no  entries,  except  at  the  beginning  and 
close  of  periods,  are  to  be  made  to  it  except  in  cases 
where  the  inventory  at  the  beginning  of  the  period  re- 
quires adjusting  by  reason  of  errors  having  been  dis- 
covered subsequently  during  the  period,  in  which  event 
the  contra  entries  should  be  made  to  Surplus  account. 

Debit:  at  the  time  of  opening  books  with  the  cost  of 
merchandise  on  hand  in  departments  and  warehouse,  the 
inventorv  of  warehouse  stock  to  be  classified  according  to 

157 


■  'J 


41 


'■1 


H 


I 


l' 


254 


MERCANTILE  COMPANIES 


departments;  with  the  cost  of  merchandise  on  hand  at 
closing  periods,  crediting  the  account,  Merchandise  Pur- 
chases, by  departments,  to  which  purchases  should  be 
charged. 

Credit:  at  closing  periods  with  the  cost  of  merchan- 
dise on  hand  at  the  beginning  of  the  period,  charging  the 
account.  Merchandise  Purchases,  by  departments. 

Balance  of  this  account  at  closing  periods,  after  mak- 
ing the  above  entries,  is  a  current  asset  and  should  repre- 
sent the  cost  of  merchandise  on  hand. 

(3)     When  a  perpetual  inventory  is  not  kept. 

The  above  ledger  accounts  may  be  dispensed  with 
and  the  inventory  at  closing  periods  shown  as  a  debit 
balance  in  the  account.  Merchandise  Purchases  to  which 
account  all  purchases  are  charged. 

254.  Reserve  for  Depreciation  of  Merchandise 
Stocks  (by  Departments).         ^ 

Debit:  with  the  amount  of  merchandise  scrapped, 
crediting  the  proper  merchandise  inventory  account;  at 
closing  periods  with  the  amount  of  any  decrease  in  the 
account.  Reserve  for  Depreciation  of  Merchandise  Stocks. 

Credit:  at  the  time  of  opening  books  with  an  amount 
estimated  to  be  sufficient  for  the  depreciation  of  merchan- 
dise stocks  on  account  of  their  becoming  antiquated,  and 
at  closing  periods  with  the  amount  of  any  increase  of 
this  reserve,  charging  the  account  Obsolete  and  Scrapped 

Merchandise. 

Balance  of  this  account  represents  the  allowance  on 
account  of  depreciation  to  be  deducted  on  the  balance 

158 


CURRENT   ASSETS 


254 


sheet  from  the  cost  value  of  the  Inventory  of  Merchan- 
dise, extending  the  net  value  at  which  it  is  to  be  carried 
from  the  standpoint  of  a  going  concern. 


159 


,ni 


FIXED  ASSETS 


256 


\ 


FIXED  ASSETS 
MERCANTILE  COMPANIES 

(See  248). 

255.     Store  Furniture  and  Fixtures. 

This  account  should  be  treated  in  a  similar  manner 
as  described  in  59  and  should  show  the  cost  of  all  furni- 
ture and  fixtures  used  in  the  selling  departments,  such  as 
partitions,  shelving,  show  cases,  desks,  counters,  chairs, 
cash  registers,  cash  carrier  systems,  trucks  and  special 
departmental  equipment,  none  of  which  is  included  as 
general  office  furniture  and  fixtures. 


of  twenty  years,  one-tenth  of  the  cost,  or  $600.00  should 
be  charged  off  annually. 

Debit:  with  the  cost  of  improvements  or  alterations 
of  a  lasting  value,  crediting  Vouchers  or  Accounts  Pay- 
able, as  the  case  may  be. 

Credit:  at  the  close  of  each  month,  if  profit  and  loss 
statements  are  prepared  monthly,  otherwise  at  closing 
periods,  with  such  a  proportionate  amount  as  will  charge 
off  the  account  over  a  certain  period  of  years,  based  on 
the  life  of  the  lease  or  improvements  as  above  described, 
charging  the  account.  Extinguishment  of  Alterations  and 
Improvements. 

Balance  of  this  account  is  a  fixed  asset,  and  should 
represent  the  value  of  the  improvements  to  a  going  con- 
cern. 


256.    Alterations  and  Improvements. 

This  account  should  show  the  cost  of  alterations  and 
improvements  on  leased  premises  made  at  the  expense  of 
the  tenant.  The  cost  of  these  improvements  should  be 
charged  off  over  a  period  of  years  in  such  annual  amounts 
that  will  eliminate  the  account  when  the  value  of  the  im- 
provements is  terminated,  or  when  the  lease  expires,  if 
the  improvements  are  of  a  more  lasting  value.  For  illus- 
tration, if  the  Hfe  of  a  lease  is  six  years  and  improvements 
of  value  for  a  period  of  ten  years  were  made  at  a  cost  of 
$6,000.00,  one-sixth  of  this  amount,  or  $1,000.00,  should 
be  charged  off  annually ;  but  if  the  lease  was  for  a  period 

160 


161 


III 


PROFIT  AND  LOSS  COSTS 


259 


>. 


V        il 


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m. 


PROFIT  AND  LOSS  REVENUES  AND  COSTS 
MERCANTILE  COMPANIES 

257.  The  Profit  and  Loss  Revenues  and  Costs  of 
mercantile  and  manufacturing  enterprises  being  generally 
similar  to  each  other,  the  instructions  previously  written 
regarding  these  accounts  under  manufacturing  companies, 
112  to  135,  are  generally  applicable  to  mercantile  com- 
panies with  the  following  exceptions: 

258.  Sales  (By  Departments). 

This  account  may  be  subdivided  as  much  as  desired 
to  meet  the  requirements  of  the  business  in  each  case ;  for 
example,  in  a  department  store  a  separate  sales  account 
should  be  carried  for  each  department. 

Debit:  at  the  close  of  each  month  with  the  total  of 
merchandise  returned  by  customers  at  selling  price,  and 
with  allowances  as  shown  by  the  Credit  Memorandum 
Summary,  crediting  Cash  Sales  account,  Accounts  Receiv- 
able and  C.  O.  D.  controlling  accounts  for  their  respective 
amounts;  at  closing  periods  with  the  Cost  of  Sales. 

Credit:  at  the  close  of  each  month  with  the  total  sales 
for  the  month  as  shown  by  the  Sales  Summary,  charging 
Cash  Sales  account,  Accounts  Receivable  and  C.  O.  D. 
controlling  accounts  for  their  respective  amounts. 

162 


Balance  of  this  account  after  making  the  above  en- 
tries at  closing  periods,  should  represent  the  gross  profit 
on  sales,  to  be  transferred  to  the  Profit  and  Loss  account. 

259.     Merchandise  Purchases  (By  Departments). 

When  a  perpetual  inventory  is  not  maintained,  all 
merchandise  purchases  should  be  charged  to  this  account. 
When  a  perpetual  inventory  is  kept  all  purchases  of  mer- 
chandise should  be  charged  to  the  stock  account  to  which 
they  are  delivered  as  described  in  252  and  253. 

This  account  may  be  kept  according  to  one  of  the 
two  following  methods : 

(i)  Debit:  with  the  cost  of  all  merchandise  pur- 
chases including  incoming  transportation  charges  on 
same  (see  188) ;  at  closing  periods  with  the  inventory  at 
the  beginning  of  the  period  being  closed,  crediting  the 
account.  Inventory  of  Merchandise — Departments;  with 
the  balance  transferred  from  the  account.  Consigned  Mer- 
chandise, if  a  debit  balance. 

Credit:  with  the  cost  of  merchandise  returned  to  pur- 
chase creditors;  with  the  inventory  at  the  close  of  the 
period,  charging  the  account,  Inventory  of  Merchandise 
— Departments;  with  the  balance  transferred  from  the 
account,  Consigned  Merchandise,  if  a  credit  balance. 

Balance  of  this  account  at  closing  periods  should 
represent  the  cost  of  merchandise  sold  and  should  be 
transferred  to  the  proper  Sales  account. 

(2)  Debit:  at  the  time  of  opening  the  books  with 
the  cost  of  merchandise  on  hand;  with  all  merchandise 
purchased  including  incoming  transportation  charges 
(see  188) ;  at  closing  periods  with  the  balance  transferred 

163 


PROFIT  AND  LOSS  COSTS 


260 


r       . 


m 


I 


t.  t  •!  -      lit 


ii 


260 


MERCANTILE  COMPANIES 


from    the    account,    Consigned    Merchandise,    if    a    debit 

balance. 

Credit:  with  the  cost  of  merchandise  returned  to  pur- 
chase creditors ;  at  closing  periods  with  the  balance  trans- 
ferred from  the  account,  Consigned  Merchandise,  if  a 
credit  balance ;  also  with  the  amount  of  the  balance  of  this 
account  less  the  inventory  at  that  time,  charging  the 
proper  Sales  account. 

Balance  of  this  account,  after  making  the  above  en- 
tries, is  a  current  asset  and  should  represent  the  amount 
of  merchandise  on  hand. 

260.     Cost  of  Sales  (By  Departments). 

When  the  sales  in  a  mercantile  business  are  not  "cost 
priced,"  the  cost  of  sales  at  closing  periods  is  shown  in 
the  account.  Merchandise  Purchases  (see  259).  There- 
fore this  account  is  kept  when  a  perpetual  inventory  is 
maintained  and  when  sales  are  "cost  priced."  As  to  sub- 
divisions it  should  correspond  to  the  Sales  accounts,  a 
separate  Cost  of  Sales  account  being  kept  for  each  depart- 
ment. 

The  "cost  pricing"  of  sales  and  maintaining  perpetual 
inventories  as  to  money  values,  not  only  constitutes  a 
check  on  merchandise  stocks,  but  furnishes  necessary 
information  in  the  preparation  of  monthly  profit  and  loss 
statements. 

In  certain  departments  of  a  business,  the  cost  pricing 
of  individual  sales  is  a  comparatively  easy  matter,  while 
in  others  it  is  impracticable.  For  example,  in  a  cloak  or 
suit  department,  the  cost  of  the  sales  may  be  readily 
ascertained  by  entering  on  each  sales  ticket  the  cost  of  the 

164 


sale,  and  summarizing  same:  but  in  the  notion  depart- 
ment, for  example,  this  method  would  entail  an  immense 
amount  of  work  considering  the  results,  therefore  in  such 
a  department  the  total  sales  may  be  satisfactorily  priced 
on  a  percentage,  based  on  the  cost  of  sales  of  previous 
periods  ascertained  from  physical  inventories.  That  is, 
if  by  physical  inventories,  the  cost  of  the  sales  of  a  certain 
department  for  a  given  period  are  found  to  be  60%  of  the 
sales,  this  percentage  may  be  used  in  pricing  the  total 
monthly  sales  of  the  department  subject  to  adjustment 
by  a  physical  inventory  at  closing  periods. 

Debit:  at  the  close  of  each  month  with  the  total  cost 
of  sales  for  the  month,  crediting  the  proper  Merchandise 
Inventorv  account. 

Credit:  at  the  close  of  each  month  with  the  total  cost 
of  merchandise  returned  by  customers  during  the  month, 
as  shown  by  the  Sales  Returned  or  Credit  Memorandum 
Summary,  charging  the  account.  Reserve  for  Deprecia- 
tion of  Merchandise  Stocks  for  defective  merchandise 
and  the  proper  Merchandise  Inventory  accounts  for  their 
respective  proportions. 

Balance  of  this  account  should  represent  the  net  cost 
of  sales  and  at  closing  periods  should  be  transferred  to 
the  proper  sales  account. 


165 


■'t 


EXPENSES 


264-267 


1. 1 

I 


I 


Ml 
I' 


EXPENSES 
MERCANTILE  COMPANIES 

(See  242). 

261.  Heat  and  Light  (Proportion) — Administrative 
Expense  Group. 

Debit:  at  the  close  of  each  month,  if  profit  and  loss 
statements  are  prepared  monthly,  otherwise,  at  closing 
periods,  with  the  proportion  of  the  heat  and  light  expense 
appHcable  to  the  general  office,  crediting  the  account, 
Heat  and  Light  (Proportion)  in  the  Selling  Expense 
group.  ^ 

262.  Stable  and  Auto  Expense  (Proportion  on  In- 
coming Merchandise). 

Debit:  at  the  close  of  each  month,  if  profit  and  loss 
statements  are  prepared  monthly,  otherwise  at  closing 
periods,  with  the  proportion  of  stable  and  automobile 
expense  applicable  to  incoming  merchandise,  crediting 
the  accounts,  Stable  Expense,  Proportion  and  Automobile 
Expense,  Proportion,  respectively,  in  the  Selling  Expense 
group. 

263.  Salaries — Clerks  (Selling). 

Debit:  with   salaries  of  clerks   devoting  their  time 

166 


exclusively  to  selling,  crediting  the  account,  Accrued  Pay 
Rolls. 

264.  Salaries  —  Miscellaneous  (Selling  Depart- 
ments). 

Debit:  at  the  close  of  each  month  or  pay  period 
with  the  salaries  of  employees  connected  with  the  selling 
department  of  the  business  which  are  not  properly  charge- 
able to  any  other  salary  account,  crediting  the  account. 
Accrued  Pay  Rolls. 

265.  Heat  and  Light  (Proportion)— Selling  Expense 

Group. 

Debit:  with  the  cost  of  heat  and  light,  crediting 
Vouchers  or  Accounts  Payable  as  the  case  may  be. 

Credit:  at  the  close  of  each  month,  if  profit  and  loss 
statements  are  prepared  monthly,  otherwise  at  closing 
periods,  with  the  proportion  of  the  heat  and  light  expense 
applicable  to  the  general  office,  charging  the  account. 
Heat  and  Light  (Proportion)  in  the  Administrative 
Expense  group. 

266.  Elevator  Wages  and  Expense. 

Debit:  at  the  close  of  each  month  or  pay  period  with 
wages  of  elevator  operators,  crediting  the  account, 
Accrued  Pay  Rolls;  with  all  other  expenses  incidental  to 
the  operation  of  elevators,  such  as  water,  repairs,  etc., 
crediting  Vouchers  or  Accounts  Payable,  as  the  case 
may  be. 

267.  Insurance — Liability. 

This  account  should  show  the  cost  of  all  liability 

167 


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268-270 


MERCANTILE  COMPANIES 


insurance,  such  as  elevator,  steam  boiler  and  general  lia- 
bility, except  that  relating  to  stable  and  automobile 
equipment,  and  should  be  treated  in  a  similar  manner  as 
described  in  168. 

268.  Insurance — Fire,  on  Merchandise  Stocks,  Build- 
ings and  Building  Fixtures. 

This  account  should  be  treated  in  a  similar  manner 
as  described  in  168,  and  should  show  the  cost  of  fire  insur- 
ance on  merchandise  stocks,  buildings  and  building  fix- 
tures, usually,  to  be  distributed  to  the  various  depart- 
ments in  proportion  to  the  valuation  of  departmental 
stocks  and  equipment. 

269.  Taxes  —  Merchandise  Stocks,  Buildings  and 
Building  Fixtures. 

This  account  should  be  treated  in  a  similar  manner 
as  described  in  177,  and  should  shov^  the  cost  of  local 
taxes  on  merchandise  stocks,  buildings  and  building  fix- 
tures, to  be  distributed  to  the  various  departments  in 
proportion  to  the  valuation  of  departmental  stocks  and 
equipment. 

270.  Repairs  to  Buildings  and  Building  Fixtures. 
Repairs  to  Store  Furniture  and  Fixtures. 

Debit:  these  accounts  respectively  in  a  similar  man- 
ner as  described  in  154,  v^ith  the  cost  of  repairs  on  items 
relating  to  each,  the  departmental  distribution  of  which 
in  some  instances  to  be  actual,  while  in  others  according 
to  space  occupied. 

168 


EXPENSES 


271-275 


\ 


271.  Extinguishment  of  Alterations  and  Improve* 
ments. 

Debit:  at  the  close  of  each  month,  if  profit  and  loss 
statements  are  prepared  monthly,  otherwise  at  closing 
periods,  with  such  a  proportionate  amount  as  will  charge 
off  the  account,  Alterations  and  Improvements,  over  a 
certain  period  of  years  as  referred  to  in  256. 

272.  Departmental  Supplies. 

This  account  should  be  treated  in  a  similar  manner 
as  described  in  149,  and  should  show  the  cost  of  depart- 
mental supplies  used,  such  as  clerks'  sales  books,  wrap- 
ping paper,  twine,  etc. 

Note — When  practicable,  these  supplies  should  be 
issued  on  requisitions,  which  should  be  summarized  and 
distributed  according  to  departments,  otherwise  the  de- 
Dartmental  distribution  may  be  made  according  to  sales. 

273.  Merchandise  Scrapped. 

Debit:  with  the  cost  of  all  merchandise  scrapped  on 
account  of  its  being  damaged,  shop-worn,  antiquated,  etc., 
when  the  reserve  account,  reference  254,  is  not  carried; 
with  the  periodical  reserve  charge,  when  a  reserve  account 
is  carried. 

Credit:  with  the  sale  of  scrap. 

274.  Stable  Expense — Proportion  (Selling  Depart- 
ments). 

275.  Automobile  Expense — Proportion  (Selling  De- 
partments). 

These  accounts  are  to  be  kept  only  when  a  portion 

169 


1.' '' 


F  ^ 


275 


MERCANTILE  COMPANIES 


of  these  expenses  are  to  be  charged  to  other  than  selling 
departments. 

Debit:  each  account  at  closing  periods  in  one  amount 
with  the  total  of  the  balances  shown  by  the  individual 
stable  and  automobile  expense  accounts,  respectively, 
crediting  the  individual  accounts. 

Credit:  at  the  close  of  each  month,  when  profit  and 
loss  statements  are  prepared  monthly,  otherwise  at  clos- 
ing periods,  with  the  proportion  to  be  charged  to  other 
than  selling  departments.  The  amount  of  this  entry  in 
most  cases  must  be  estimated. 

Balance  of  this  account,  after  making  the  above  en- 
tries, should  represent  the  stable  expenses  and  automobile 
expenses,  respectively,  applicable  to  selling  departments. 


ill 


PART  4 


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PRINCIPLES 

OF 

COST  ACCOUNTING 


170 


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PRINCIPLES  OF  COST  ACCOUNTING 

Owing  to  the  fact  that  there  is  such  a  variety  of  con- 
ditions to  be  met  in  different  lines  of  manufacturing,  no 
ifixed  rules  or  set  of  forms  can  be  prepared  specifically 
applicable  to  all  cases,  and  as  the  main  object  of  this 
reference  book  is  to  deal  with  the  general  accounts  of  a 
business,  the  subject  of  cost  accounting  will  be  treated 
only  briefly  as  to  the  principles  involved  in  arriving  at 
manufacturing  costs  and  bringing  the  cost  figures  under 
the  control  of  the  general  books  from  which  financial  and 
operating  statements  are  prepared. 

276,    Importance  of  a  Cost  System. 

The  importance  and,  in  fact,  necessity  of  an  adequate 
cost  system  in  order  to  determine  accurate  costs  of  goods 
manufactured,  will  not  be  generally  discussed  here,  but 
it  has  been  found  by  actual  experience  that  the  manufac- 
turer who  depends  upon  estimated  and  test  costs  of 
material  and  labor  with  an  estimated  percentage  added  to 
cover  "Overhead,'*  for  information  upon  which  to  establish 
selling  prices,  seldom  finds  that  the  actual  results  come  up 
to  his  expectations,  and  it  is  he  who  cannot  understand 
why  his  business  does  not  show  greater  net  pro/fits.  Such 
methods  fail  to  show  true  cost  for  the  reason  that  a  test 
job  at  one  period  under  certain  favorable  conditions  of 

173 


!  ■ 


m 


276 


PRINCIPLES  OF  COST  ACCOUNTING 


\r, 


production  may  be  greatly  increased  at  a  different  period 
under  less  favorable  conditions  of  manufacture  when 
increased  costs  of  material  and  expenses  together  with 
other  items  such  as  the  element  of  waste,  have  been  lost 
sight  of. 

A  cost  system  to  be  relied  upon,  should  constitute  a 
part  of  the  general  books  of  account  by  being  controlled 
by  the  general  ledger.  The  effective  cost  system  is 
founded  on  the  principles  of  double  entry  bookkeeping, 
operating  on  debits  and  credits,  the  various  processes  and 
stages  of  manufacture  thus  balancing  with  certain  contra 
accounts.  When  a  cost  system  is  not  operated  in  this 
manner  and  controlled  by  the  general  books,  it  is  no 
more  nor  less  than  a  memorandum  system,  to  be  com- 
pared with  the  single  entry  method  of  bookkeeping, 
which  has  been  generally  discarded  long  ago  on  account 
of  its  inadequacy.  The  efficient  cost  system  not  only 
serves  to  show  detailed  costs  of  production,  but  also  pro- 
vides for  a  perpetual  inventory,  thus  making  possible  in 
most  cases  the  preparation  of  monthly  statements  show- 
ing the  financial  condition  of  a  business  and  its  results 
from  operation.  Although  there  may  be  some  certain 
lines  of  business  in  which  a  detailed  cost  system  is  im- 
practicable, in  the  majority  of  them  it  may  be  installed 
and  maintained  to  advantage. 

Briefly  then  a  cost  system,  properly  installed  on 
scientific  principles,  furnishes  the  information  which 
enables  the  management  of  a  business  to  eliminate  waste, 
reduce  costs  and  expenses,  and  most  important,  to  know 
actual  costs  and  thus  be  able  to  meet  competition   intelli- 

174 


ELEMENTS  OF   COST  277-278 

gently;  to  push  the  paying  lines  and  eliminate  the  losing 
ones. 

277.  Distinction  Between  Accounts  for  a  Manu- 
facturing and  Mercantile  Business. 

The  accounts  referred  to  in  this  book  relate  mainly 
to  two  general  classes  of  business,  viz.:  Mercantile  and 
Manufacturing. 

A  Mercantile  or  Trading  business  is  one  which  buys 
and  sells  merchandise  manufactured  by  others. 

A  Manufacturing  business  is  one  which  buys  raw  or 
semi-finished  material  and  by  the  addition  of  labor  and 
other  expenses,  converts  it  into  a  marketable  product. 

In  the  first,  the  cost  is  represented  by  the  purchase 
price  together  with  incoming  transportation  charges.  In 
the  second,  the  production  cost  consists  of  material,  labor 
and  manufacturing  expenses.  In  the  first,  arriving  at  the 
cost  is  simple,  while  in  the  second  it  is  often  very  difficult. 

The  expenses  of  a  mercantile  business  may  be  divided 
into  two  general  groups,  viz. :  Administrative  and  Selling, 
while  to  the  manufacturing  business  is  added  another 
group  termed  "Manufacturing  Expenses."  It  may  be 
seen  by  referring  to  26  and  248  that  the  principal  differ- 
ence in  the  accounts  of  a  mercantile  and  a  manufacturing 
business  is,  that  the  latter  requires  plant  accounts,  pro- 
duction accounts  and  manufacturing  expense  accounts 
not  found  in  the  list  of  accounts  for  the  former. 

278.  Elements  of  Manufacturing  Costs. 
Manufacturing  costs,  composed  of  the  three  principal 

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279-280  PRINCIPLES  OF   COST  ACCOUNTING 

elements  of  Material,  Labor  and  Expense,  are  classified 
into  three  principal  divisions,  viz. : 

(i)     Direct  Material. 

(2)  Direct  Labor. 

(3)  Manufacturing  Expense  also  termed  "Over- 
head'' or  "Burden,"  including  indirect  material,  indirect 
labor  and  expense. 

The  first  two  divisions  constitute  "Prime  Cost"  or 
"Direct  Charges  to  Manufacturing"  and  the  third  con- 
stitutes "Indirect  Charges  to  Manufacturing." 

279.  (i)     Direct  Material. 

This  includes  all  material  used  which  is  chargeable 
directly  to  a  specific  job  number  or  process.  All  other 
material,  termed  indirect  material,  used  in  manufacturing 
operations,  such  as  oil,  waste,  packing,  fuel,  supplies,  etc., 
which  is  not  chargeable  to  any  job  number  or  process, 
is  classified  as  manufacturing  expense  or  overhead, 
although  the  general  term,  material,  embraces  both  direct 
and  indirect  material.  A  general  description  of  the 
method  of  handling  material  records  is  as  follows: 

280.  Perpetual  Inventory. 

When  a  cost  system  is  maintained,  all  purchases  of 
material  should  be  charged  to  a  stores  account. 

This  embraces  the  keeping  of  stock  records  with 
each  vsize  and  kind  of  material  items  showing  quantities 
received,  dates,  unit  cost,  quantities  issued  or  used  and 
balance  on  hand.  This  information  may  be  kept  on 
cards  or  in  loose  leaf  record  books;  and  when  possible, 
should  be  kept  in  the  office  of  the  factory  accounting  depart- 

176 


MATERIAL  RECEIVED  AND  ISSUED 


281-282 


ment,  by  employees  who  are  in  no  way  identified  with  the 
stock  room,  in  order  to  obtain  an  efficient  check  on  the 
stock  in  store  rooms.  When  more  than  one  stock  room 
exists,  a  separate  set  of  records  and  controlling  account 
should  be  kept  with  each. 

In  order  that  the  records  may  be  accurately  main- 
tained, certain  of  the  stock  items  should  be  verified  regu- 
larly at  stated  intervals,  and  all  differences  between  the 
records  and  quantities  actually  on  hand  investigated  and 
the  proper  adjusting  entries  prepared. 

The  method  leading  up  to  recording  the  entries  on 
the  stock  records  varies  with  different  lines  of  business, 
but  it  is  illustrated  in  general  as  follows: 

281.  Material  Received. 

All  incoming  material  is  recorded  by  the  receiving 
department  on  receiving  slips,  two  copies  of  which  are 
passed  to  the  purchasing  department,  one  copy  to  be 
attached  to  the  purchase  invoice,  the  other  to  be  priced 
and  forwarded  to  the  stock  record  clerk,  who  enters 
on  the  stock  records  the  date,  quantity  received,  and 
unit  cost. 

Material  transferred  to  the  store  room  from  work 
in  process  is  recorded  on  transfer  slips  after  being  priced 
by  the  cost  department.  These  are  summarized  and 
charged  in  total  at  the  close  of  the  month  to  the  control- 
ling account.  Stores  and  credited  to  the  account,  Work 
in  Process. 

282.  Material  Issued. 

All  material  used  in  the  different  departments  either 

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283-285  PRINCIPLES  OF  COST  ACCOUNTING 

for  production  or  expenses  should  be  drawn  from  the 
store  room  on  a  stores  order  or  requisition,  the  form  to 
show  date,  department,  job  number  or  account,  article, 
quantity,  cost,  by  whom  received  and  by  whom  ordered. 
The   store   keeper   receiving  these   requisitions,   delivers 
them  daily  to  the  cost  department  to  be  entered  on  the 
the  stock  records,  from  which  they  are  priced,  and  in 
turn  extended  and  filed  for  summarizing  to  be  eventually 
charged  to  the  proper  job  or  account  number.    They  are 
also  summarized  as  to  departments,  charging  at  the  close 
of  the  month  the  accounts.  Work  in  Process,  Operating 
Expenses  and  crediting  Stores. 

283.  Material  Transferred  from  One  Department  to 

Another. 

As  work  in  the  factory  is  completed  or  transferred 
from  one  department  to  another,  transfer  slips  are  issued, 
summarized  and  posted  to  the  cost  sheets  or  departments 
to  which  they  refer. 

284.  (2)     Direct  Labor. 

This  includes  all  labor  which  is  chargeable  directly 
to  a  specific  job  number  or  process.  All  other  labor 
termed  "indirect  labor"  such  as  salaries  of  superintend- 
ents and  foremen,  engineers,  watchmen,  store  keepers, 
sweepers,  truckers,  etc.,  constitutes  a  part  of  the  manu- 
facturing expense  or  overhead. 

285.  Time  Tickets. 

The  distribution  of  labor  as  to  job  numbers  and  ex- 
pense accounts  originates  with  the  time  tickets.     These 

178 


METHODS   OF   PAYING   WAGES 


286-289 


should  show  date,  employee's  name  and  number,  depart- 
ment, job  number  or  account  number,  operation,  hours, 
rate,  number  of  pieces,  rate  per  piece,  amount.  They  are 
made  out  by  the  workmen  or  timekeeper  as  the  case  may 
be,  and  collected  daily  and  delivered  to  the  pay  roll  de- 
partment to  be  compared  with  the  clock  cards,  priced 
and  turned  over  to  the  cost  department  to  be  filed  and 
summarized  at  the  proper  time,  and  charged  to  the  proper 
job  or  account  number.  They  are  also  summarized  accord- 
ing to  departments,  charging  at  the  close  of  the  month  the 
accounts.  Work  in  Process,  Operating  Expenses,  and 
crediting  Accrued  Wages. 

286.  Methods  of  Pajang  Wages. 

There  are  various  methods  of  paying  wages,  some  of 
which  are  as  follows: 

287.  (a)     Day  Rate  Plan. 

This  consists  of  paying  employees  at  a  certain  rate 
per  hour  or  day. 

288.  (b)     Piece  Work  Plan. 

This  consists  of  paying  employees  for  the  exact 
amount  of  work  performed  at  a  certain  price  per  piece. 

289.  (c)     Differential  Rate  Plan. 

This  consists  of  paying  employees  an  increased  or 
decreased  rate  per  piece  according  to  the  increased  or 
decreased  number  of  pieces  produced  over  or  under  a 
certain  standard.  For  illustration,  suppose  that  it  is 
found  in  a  certain  factory  that  the  average  number  of  a 
certain  part  produced  by  all  workmen  per   day  is   ten, 

179 


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290-292  PRINCIPLES   OF   COST   ACCOUNTING 

for  which  25^  per  piece  is  paid.  In  order  to  increase  the 
production,  workmen  are  allowed  28^  per  piece  for  all 
over  ten  produced  per  day,  and  on  the  other  hand  22^ 
per  piece  for  all  pieces  under  ten  produced  per  day. 

290.     (d)     Premium  Rate  Plan. 

This  consists  of  allowing  workmen  a  certain  extra 
amount  or  premium  on  time  saved  in  performing  a  cer- 
tain  piece  of  work  based  on  a  certain  standard.     For 
example,  if  the  average  time  of  all  workmen  to  perform 
a  certain  piece  of  work  is  ten  hours  at  the  rate  of  25^ 
per  hour,  and  if  a  workman  performs  the  work  in  eight 
hours,  he  is  paid  the  eight  hours  at  25^  per  hour  or  $2.00 
and  for  the  two  hours  saved  he  is  paid  one-half  of  the 
saving  or  25«f  as  a  premium  in  addition  to  the  remaining 
two  hours  at  the  regular  rate,  so  that  for  the  day  he  would 
receive  ten  hours  at  the  regular  rate  of  25^  or  $2.50  plus 
the  premium  of  25^  or  a  total  of  $2.75. 

291.  (e)     Bonus  Rate  Plan. 

This  plan  is  similar  to  the  premium  rate  plan,  only 
the  rate  per  hour  is  increased  instead  of  the  rate  per 
piece  according  to  the  saving  of  time  based  on  a  certain 
standard.  For  illustration,  if  a  rate  of  25^  per  hour  is 
paid  for  producing  12  pieces  per  hour,  29^  per  hour  is 
paid  if  15  pieces  per  hour  are  produced. 

292.  (f)     Profit  Sharing  Plan. 

This  consists  of  a  distribution  to  employees  of  a  cer- 
tain percentage  of  the  net  profits  for  a  given  period. 
This  plan  is  not  as  satisfactory  as  the  others,  however, 

180 


MANUFACTURING  EXPENSES 


293-296 


as  the  inefficient  workman  shares  in  the  profits  similar 
to  the  efficient,  and  then  certain  conditions  may  arise  over 
which  workmen  have  no  control,  thus  causing  a  loss,  in 
which  event  they  would  be  deprived  of  an  extra  com- 
pensation for  their  increased  efforts. 

293.  Manufacturing  Expenses,  "Overhead"  or 
•'Burden." 

This  term  includes  all  expenses  incidental  to  the 
operation  of  the  plant  such  as  indirect  labor,  heat,  light 
and  power,  maintenance  of  plant,  stable  expense,  rent, 
taxes,  insurance,  depreciation,  etc.  (For  detailed  accounts 
see  26).  Administrative  and  SelHng  Expenses  are  not  to 
be  included  in  Manufacturing  overhead. 

294.  Distribution  of  Manufacturing  Expenses  to 
Departments. 

The  manufacturing  expenses  should  first  be  distrib- 
uted to  the  various  departments.  They  may  be  classified 
into  two  general  divisions,  viz: 

(a)  Direct  Expenses. 

(b)  Indirect  Expenses. 

295.  Direct  Expenses  are  those  which  may  be  iden- 
tified with  certain  departments  and  are  thus  chargeable 
directly  to  them. 

296.  Indirect  Expenses  are  those  which  are  charge- 
able as  general  operating  expenses  to  the  entire  plant  to 
be  prorated  over  the  various  departments  according  to 
some  given  element,  for  example,  labor. 

181 


■  1 


296 


PRINCIPLES  OF  COST  ACCOUNTING 


DISTRIBUTION    OF    EXPENSES 


297-298 


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No  fixed  rule  for  the  classification  of  expenses  can  be 
given  applicable  to  all  cases,  but  the  following  accounts 
are  given  as  illustrations  of  how  they  may  be  treated 
under  certain  conditions. 

Referring  to  the  manufacturing  expense  group  of 
accounts  (See  26),  Salaries  of  Foremen  may  belong  to 
the  first  class,  being  chargeable  directly  to  certain  depart- 
ments from  the  pay  roll  distribution  summary,  while  the 
accounts,  Salaries  of  Superintendents,  Factory  Account- 
ing Employees  and  Storekeepers,  belong  to  the  second 
class,  as  they  constitute  general  operating  expenses  of 
the  entire  plant.  The  indirect  labor  accounts  may  be 
both  direct  and  indirect.  The  heat  and  light  accounts 
in  most  cases  may  be  distributed  directly  to  departments 
in  proportion  to  floor  space ;  power  according  to  machines, 
or  in  manv  cases,  an  accurate  distribution  of  electric  cur- 
rent  and  gas  may  be  obtained  by  means  of  departmental 
meter  readings.  Of  the  maintenance  accounts,  portions 
are  chargeable  directly  to  departments  from  the  material 
and  labor  distribution  summaries,  while  other  portions 
are  chargeable  only  as  general  indirect  expenses.  Rent 
may  be  distributed  directly  to  departments  according  to 
floor  space;  Taxes  and  Fire  Insurance  according  to  val- 
uation of  stocks  and  equipment;  LiabiHty  Insurance  ac- 
cording to  pay  rolls;  Factory  SuppHes,  direct  from  the 
material  distribution  summary;  Experimental  Work  and 
Lost  Time,  direct  from  the  labor  distribution  summary; 
Stable  and  Auto  Expenses,  Incoming  Transportation 
Charges  Undistributed  and  the  Proportion  of  Administra- 
tive Expenses  belong  to  the  second  class.  Water,  Tele- 
phone and  Telegraph  may  be  both  direct  and  indirect. 

182 


Depreciation  and  Interest  on  Investments  may  be  com- 
puted on  the  equipment  of  each  department  and  charged 
direct,  and  these  charges  applicable  to  the  remainder  of 
the  plant  may  be  treated  as  indirect  expenses. 

297.     Distribution    of    Manufacturing    Expenses    to 

Cost  Sheets. 

The  sum  of  the  two  above  mentioned  classes  of 
expenses  for  each  department  constitutes  the  amount  of 
overhead  of  the  department  to  be  distributed  to  its  own 
product  according  to  one  of  several  different  methods, 
four  of  which,   for  illustration,  are  briefly  described   as 

follows : 

(a)  Direct  Labor  Cost  Method. 

(b)  Direct  Labor  Hours  Method. 

(c)  Direct  Labor  and  Material  Method. 

(d)  Machine  Hour  Method. 

298.  (a)  Direct  Labor  Cost  Method  of  Distrib- 
uting Overhead  Expense. 

Under  this  method  the  expenses  are  distributed  to 
the  various  jobs  by  adding  to  the  material  and  labor  cost, 
a  certain  percent  of  the  labor  for  overhead,  this  percent 
being  found  by  dividing  the  total  manufacturing  expense 
of  a  certain  department  by  the  total  manufacturing  labor 
of  the  department,  the  quotient,  carried  to  four  decimal 
places,  being  the  percent  of  expense  to  direct  labor  for 
the  department.  For  example,  if  the  direct  labor  in  a 
certain  department  for  a  given  period  is  $10,000.00  and 
the  manufacturing  expense  $5,000.00,  the  percent  of 
expense  to  labor  would  be  50%  applied  as  follows: 

183 


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jl 


299 


PRINCIPLES  OF  COST  ACCOUNTING 


DISTRIBUTION  OF  EXPENSES 


300-302 


hi 


1:' 


Cost  Sheet  Results. 
Direct  Material  Cost                  ^. 
Direct  Labor  Cost 

$100.00 
60.00 

Total  Material  and  Labor 
Overhead  Expense  50%  of  Labpr 

160.00 
^\    go.oo 

Total  Factory  Cost                     \*^'^:% 

^v  $100.00 

This  method  is  fairly  accurate  when  the  expenses  of 
each  department  are  kept  separate,  but  when  the  ex- 
penses of  the  entire  factory  are  distributed  according  to 
the  labor  of  the  entire  factory,  the  results  are  not  accurate 
owing  to  the  fact  that  the  expenses  of  different  depart- 
ments are  so  at  variance. 

This  method  is  not  as  accurate  as  the  direct  labor 
hours  method  owing  to  the  fact  that  a  skilled  mechanic 
receiving  35^  per  hour  may  require  no  more  actual  over- 
head per  hour  than  an  apprentice  receiving  10^  per  hour. 
However,  it  must  be  admitted  that  the  product  of  skilled 
labor  is  entitled  to  a  greater  margin  of  profit  than  that 
of  unskilled  labor,  thus  justifying  this  method  of  distribu- 
tion in  certain  cases. 

299.  (b)  Direct  Labor  Hours  Method  of  Distribu- 
ting Overhead  Expense. 

Under  this  method  the  total  number  of  hours  of 
direct  labor  is  divided  into  the  total  manufacturing  ex- 
penses, giving  the  overhead  cost  per  hour.  This  method 
gives  more  accurate  results  than  the  direct  labor  cost 
method  owing  to  the  fact  that  the  expense  is  distributed 

184 


equally  over  high  labor  or  low  labor  costs,  being  based 
on  the  number  of  hours  w^orked. 

300.  (c)  Direct  Labor  and  Material  Method  of 
Distributing  Overhead  Expense. 

This  method  is  similar  to  the  direct  labor  cost 
method,  except  that  the  total  of  direct  labor  and  material 
cost  instead  of  the  direct  labor  cost  alone,  is  divided  into 
the  total  overhead  expense,  giving  the  percent  of  over- 
head expense  to  be  added  to  material  and  labor  cost. 
This  method  is  practicable  only  when  the  material  con- 
stitutes the  greater  portion  of  the  direct  cost  of  the  prod- 
uct. 

301.  (d)  Machine  Hour  Method  of  Distributing 
Overhead  Expense. 

Under  this  method  the  number  of  machine  hours  is 
used  as  a  basis  of  costs,  each  job  being  charged  with  the 
number  of  hours  each  machine  is  used  on  the  job.  The 
direct  hourly  rate  to  be  charged  for  operating  the  differ- 
ent machines  is  determined  by  distributing  directly  to 
the  different  machines,  the  greater  portion  of  the  expenses 
of  the  department  in  which  the  machine  is  located.  Those 
expenses  which  are  not  distributed  directly  in  the  hourly 
rate  charge  are  prorated  in  a  manner  similar  to  some  one 
of  the  above  described  methods. 

302.  Factory  Ledger. 

A  factory  ledger,  controlled  by  the  general  ledger, 
should  be  kept  containing  accounts  with  the  various  store 
rooms,  labor,   work   in  process,   overhead   expenses   and 

185 


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I   A 


t 


ii 


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303-304  PRINCIPLES  OF   COST  ACCOUNTING 

general  ledger.  A  controlling  account  only  with  over- 
head  expenses  may  be  carried  in  the  factory  ledger,  ob- 
taining the  amount  of  individual  accounts  and  the  depart- 
mental distribution  from  expense  analysis  sheets;  or  a 
separate  ledger  sheet  may  be  given  to  each  expense 
account,  the  sheet  to  be  ruled  with  columns  for  each  de- 
partment, thus  showing  the  total  amount  of  each  expense 
account  with  the  departmental  distribution;  totals  only 
being  posted  from  the  distribution  summaries  at  the  close 
of  each  month.  This  method  provides  a  valuable  com- 
parative analysis  record. 

Some  prefer  to  carry  each  manufacturing  expense 
account  independent  of  departmental  distribution  in  the 
general  ledger,  obtaining  the  distribution  for  monthly 
operating  statements  from  expense  analysis  sheets.  The 
method  to  be  adopted  depends  upon  conditions  in  each 

case. 

When  the  details  of  the  manufacturing  accounts  are 
kept  in  the  factory  ledger,  it  becomes  necessary  to  keep 
in  the  general  or  private  ledger,  only  a  controlling  account 
with  the  factory  ledger. 

303.  Methods  of  Cost  Finding. 

There  are  two  general  methods  of  cost  finding,  viz: 

(a)  Production  Order  Method. 

(b)  Process  Method. 

304.  (a)  The  Production  Order  Method  provides 
for  charging  direct  material  and  labor  to  a  given  order, 
article  or  product,  to  which  total  is   added  a  pro  rata 

186 


PRODUCTION  ORDER 


305-306 


share   of   overhead   expenses,   based   on   some   certain   ele- 
ment of  direct  cost  to  make  total  cost. 

305.  Manufacturing  or  Production  Order. 

This  is  a  written  order  issued  by  the  factory  super- 
intendent to  the  various  departments  concerned  when  a 
job  is  to  be  started,  giving  the  necessary  specifications 
relating  to  it.  It  should  be  in  a  form  to  show  order  num- 
ber, date  issued,  date  wanted,  date  completed,  quantity, 
and  description  of  product. 

For  example,  an  order  is  issued  to  assemble  fifty 
complete  machines  of  a  certain  model.  This  order  is 
registered  in  the  order  register,  receiving  a  number  by 
which  it  is  identified  until  the  job  is  completed.  If  parts 
are  required  to  be  manufactured  for  stock  or  to  complete 
the  order,  separate  manufacturing  orders,  identitfied  by 
separate  order  numbers,  are  issued  for  each  part  required. 

The  form  and  details  as  to  issuing  these  orders 
depend  upon  the  specific  conditions  in  each  case,  but  the 
following  procedure  is  given  as  an  illustration,  applicable 
under  certain  conditions.  One  copy  is  sent  to  each  manu- 
facturing department  affected,  one  copy  to  the  store 
room,  one  copy  to  the  cost  department,  ruled  to  act  as 
a  cost  sheet;  and  two  copies  remain  in  the  superintend- 
ent's office,  one  to  be  filed  numerically  constituting  an 
order  register  and  the  other  to  be  placed  on  a  "unfilled 
order  file,"  where  it  remains  until  completed,  when  it  is 
transferred  to  a  "completed  order  file." 

306.  Construction  and  Maintenance  Orders. 

For   construction   and  maintenance   of   plant   items, 

187 


307 


PRINCIPLES  OF   COST   ACCOUNTING 


PROCESS  METHOD 


308-309 


ft 


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orders  are  issued  by  the  superintendent  in  a  similar  man- 
ner as  described  in  305,  the  cost  sheets  being  carried  in 
the  indirect  cost  ledger  until  completed,  when  they  are 
transferred  to  the  proper  expense  or  fixed  asset  account. 
For  petty  repairs  of,  say  $10.00  or  less,  usually  no  order 
is  considered  necessary,  in  which  event  workmen's  time 
tickets  should  indicate  the  expense  account  to  be  charged 

as: 

Repairs  to  Buildings  and  Building  Fixtures. 

Power  Plant. 

Machinery. 

Factory  Fixtures,  etc. 


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307.    Cost  Ledger. 

The   detailed    costs    are    assembled   on    cost    sheets 
showing  separately  the  cost  of  material,  labor  and  over- 
head expense  for  each  job,  the  form  to  contain  columns 
headed  accordingly.     These  cost  sheets  collectively  con- 
stitute the  Cost  Ledger.     As  before  stated,  a  cost  sheet 
is  kept  corresponding  to  each  job  number  to  which  are 
posted  all  direct  charges  for  material  and  labor  relating 
to  it,  the  material  originating  with  the  requisitions,  and 
the  labor,  with  the  time  tickets.     At  the  close  of  each 
month  the  manufacturing  overhead  should  be  entered  on 
the  cost  sheets  according  to  one  of  the  methods  referred 
to   in   297.     On   jobs   completed   during  the   month    on 
which  costs  are  desired  before  the  close  of  the  month,  the 
rate  of  manufacturing  overhead  is  based  on  the  known 
rate  at  the  beginning  of  the  month. 

When  a  job  is  completed,  its  cost  sheet  should  be 
removed  and  filed  in  a  transfer  binder,  thus  keeping  only 

188 


unfinished  jobs  in  the  current  cost  ledger.  At  the  close 
of  the  month  after  posting  the  totals  of  material,  labor, 
overhead  and  transfer  slips  to  the  controlling  accounts  of 
Stores  and  Work  in  Process,  and  the  detailed  totals  to  the 
cost  sheets  of  each  department,  the  aggregate  of  the 
cost  sheets  of  each  department  should  then  agree  with 
the  respective  departmental  controlling  accounts  of  Work 
in  Process;  and  the  aggregate  of  all  cost  sheets  for  the 
entire  factory  should  agree  with  the  one  ledger  control- 
ling account.  Work  in  Process. 

308.     (b)     The  Process  Method. 
In    certain   lines    of    manufacturing    the   production 
order  method,  described  in  304  to  307  inclusive,  is  not 
practicable,  and  costs  are  found  by  the  method,  termed 
the  "Process  Method.*'     Examples  are  flour  mills,  sugar 
and  salt  refineries,  button  and  pin  factories,  nail  mills, 
yarn  mills,  etc.     Under  this  method  all  material,  labor 
and   overhead    expenses    are   distributed   to    the   various 
departments  in  a  similar  manner  as  described  in  the  pro- 
duction order  method.     The  unit  cost  of  production  by 
departments  is  then  found  by  dividing  the  total  produc- 
tion cost  of  a  department  for  a  given  period  by  the  num- 
ber of  units  of  production ;  the  unit  may  be  tons,  pounds, 
gross,  dozen  or  each.     Under  this  method  instead  of  is- 
suing  special   production   orders   for   each   lot,    standing 
shop  orders,   covering  operations  or  processes,  may  be 
issued,  to  which  all  material,  labor  and  expenses  are  dis- 
tributed. 

309.    By-Products. 

The  question  often  arises  as  to  the  proper  method 

189 


I 


;i!i 


310 


PRINCIPLES  OF   COST   ACCOUNTING 


ESTABLISHING  SELLING  PRICES 


310 


i 


of  handling  the  account  with  salvage  which  is  either  sold 
in  its  natural  state  or  manufactured  into  other  products 
called  "By-Products."  Packing  and  refining  companies 
are  good  examples,  and  often  these  by-products  constitute 
the  greater  portion  of  the  business.  If  no  other  labor 
or  material  is  necessary  to  convert  them  into  marketable 
products,  they  are  sold  as  such,  the  revenues  from  which 
constituting  a  reduction  in  the  cost  of  the  main  products. 
If  labor  and  material  are  added  to  make  the  products 
marketable,  manufacturing  departments  should  be  main- 
tained for  that  purpose,  and  be  charged  with  the  market 
value  of  the  scrap,  and  these  departments  then  handled 
as  other  manufacturing  departments. 

310.     Establishing  Selling  Prices. 

Costs  as  related  to  manufacturing,  as  previously 
Stated,  consist  of  material,  labor  and  overhead  as  factory 
costs,  to  which  are  added  administrative  and  selling  ex- 
penses, making  the  total  cost  to  produce  and  sell,  illus- 
trated as  follows: 

Material  Cost  $100.00 

Add  Direct  Labor  60.00 

"    Overhead  (50%  of  labor)  '       30.00 


Total  Factory  Cost 

Add    Administrative    and    Selling    Ex- 
penses (25%  of  Factory  Cost) 


190.00 


47.50 


Total  Cost  to  Produce  and  Sell  $237.50 

The  costs  as  related  to  a  mercantile  business  consist 
of  the  purchase  price  of  goods,  together  with  incoming 

IQO 


transportation  charges  constituting  direct  costs,  to  which 
are  added  administrative  and  selling  expenses,  making  the 
total  cost,  to  purchase  and  sell,  illustrated  as  follows: 
Cost  of  Merchandise  Purchased  $100.00 

Add    Administrative    and    Selling    Ex- 
penses (33  1/3%  oi  Cost)  33-33 

Total  $13333 

When  the  percentages  of  profits  are  calculated  on 
the  cost  price,  the  desired  percentage  of  profit  in  the  above 
cases  would  be  figured  on  the  respective  costs  and  added 
to  them,  producing  the  selHng  prices,  but  it  is  customary 
with  many  manufacturers  and  the  majority  of  merchants 
to  figure  the  percentage  of  expenses  and  profits  on  sales 
instead  of  costs. 

The  question  then  arises — what  percentage  must  be 
added  to  production  or  purchase  cost,  covering  adminis- 
trative and  selling  expenses,  to  make  a  certain  percent 
net  profit  on  the  sales:  in  answer  to  which  the  following 
form  of  solution  is  suggested: 
Let  a=Selling  Price,  100%. 

b=a,  less  the  total  percentages  on  sales. 

c=iExpenses.  , 

d=Profit   on  Sales. 

g_y^tQ  be  added  to  cost  to  make  a  certain  % 

of  sales. 
Then: 

c+d 


it 


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191 


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310  PRINCIPLES  OF   COST   ACCOUNTING 

Example  i.  What  percent  must  be  added  to  factory 
or  purchase  cost  to  make  10%  net  on  sales,  when  the 
administrative  and  selling  expenses  are  25%  of  sales? 

Solution : 

c+d         25%  +  io%  35% 

=e. = =54% 

b  loofo— (25%  +  io%)     65% 

Application : 

Cost  of  article  $2.00 

Add  54%  1.08 


Selling  Price 

Proof : 

Cost  $2.00 

Add  25  fo  of  sales  ($3.08)  for 

expenses  -77 

Add  10%  of  sales  ($3.08)  for 

profit  -3^ 


$3.08 


$3.08 


Or: 

Selling  Price 
Expenses 
Profit  desired 


100% 


25%  of  sales. 
10%  of  sales. 


ioo%— 35%=65%  of  sales. 
$2.oo-7-.65=$3.o8,   selling  price. 


192 


ESTABLISHING  SELLING  PRICES 


310 


Example  2.  What  per  cent  must  be  added  to  the 
material  and  labor  cost  of  a  certain  article  to  make  10% 
net  profit  on  the  sales,  when  the  Factory  Overhead  is 
22%  of  the  Material  and  Labor  cost  and  the  Commercial 
Expenses  are  15%  of  sales f 
Solution: 

c+d  22%  +  15%  +  iofo         47% 

=e,-^ -= =^2  2/3% 

h  ioo%— (157^  +  10%)     75% 


193 


11 


PART  5 


OPENING  ENTRIES 


'ii 


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OPENING  ENTRIES. 

311.  Opening  Entry  for  business  operated  by  indi- 
vidual with  cash  investment. 

C.  J.  Wilson  engages  in  the  retail  coal  business  with 
a  cash  investment  of  $10,000.00. 
Entry. 

C.  J.  Wilson  has  this day  of 

19 commenced  business  located  at 

as  a  retail  coal  dealer  with  a  cash  investment  of  $10,000.00. 

Cash  $10,000.00. 

To  C.  J.  Wilson  (Capital  Account)  $10,000.00. 

For  amount  of  investment  on  this  date. 

312.  Opening  Entry  for  partnership  with  cash  in- 
vestment. 

J.  W.  Henderson  and  R.  F.  Fox  form  a  partnership 
for  the  purpose  of  conducting  a  general  merchandise  busi- 
ness, each  investing  $5,000.00. 
Entry. 

A  partnership  has  this day  of 

ig been  formed  between  J.  W.  Henderson  and  R.  F.  Fox  for  the 

purpose  of  conducting   a    general    merchandise    business,  located  at 

each  investing  $5,000.00  in 

cash.    The  business  is  to  be  operated  under  the  firm  name  of  Hender- 
son &  Fox,  the  profits  or  losses  to  be  shared  equally. 

Cash  $10,000.00. 

To:  J.  W.  Henderson  (Capital  Account)  $5,000.00 

R.  F.  Fox  (Capital  Account)  5,000.00 

For  amount  of  investment  on  this  date. 

313.  Opening  Entry  for  partnership  with  cash  and 
other  property  investments. 

A.  C.  Arnold  and  J.  W.  Shaw  enter  into  a  partner- 

197 


II 


II,' 


PARTNERSHIP 


3IS 


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II 


flil 


■| 


314 


OPENING  ENTRIES 


Ship  for  the  purpose  of  conducting  a  retail  jewelry  busi- 
ness A.  C.  Arnold  invests  Notes  Receivable  $1,50000 
with  accrued  interest  $75-00,  Accounts  Receivable 
$4,682.00,  Merchandise  $24,643.00,  Prepaid  Insurance 
$350.00.  Store  Furniture  and  Fixtures  $1,800.00  with  ha- 
bUities  to  be  assumed  by  the  firm  as  follows:  No^s 
Payable  $6,000.00,   Accounts   Payable  $2,050.00      J.  W. 

•         .       ocv.  "R^cooooo      The  profits  or  losses  to 
Shaw  invests  cash  $25,000.00.      ^'^^  f 

be  shared  equally. 

Entry.  dav  of 

A  partnership  has  W'^.......-------     J  ,    ^    gj^        for  the 

profits  or  losses  to  be  shared  equally.    The  entries 
Respective  net  investments  are  as  follows. 

Notes    Receivable    (Itemize,    showing    date 
maker,  time,  interest  and  amount)  $  i,5O0.O0 

Accrued  Interest-Notes  Re^^^^^^^^^  ^^-oo 

^^Slidife^^^^^^  -^3.00 

I[ork^"Srand    Fixtures    (per    Inven-    ^^^^ 

^""to-  Notes  Payable  (Itemize,  showing  date,  payee, 
time,  interest  and  amount) 
Accounts  Payable  (Itemize) 

A.  C.  A^'nojd       .     p    Arnold   as   per    above    assets  and 
For  net  investment  of  A.  C    Arnoia   <*»    v^ 

liabilities. 


$  6,000.00 

2,050.00 

25,000.00 


Cash  (see  Cash  Book) 

To  J.  W.  Shaw 
For  cash  investment  of  J.  W.  Shaw. 


$25,000.00 


25,000.00 


314.  Note-It  is  suggested  that  opening  entries 
containing  both  cash  and  other  transactions,  as  the  above 
for  example,  be  made  complete  in  the  Journal.  The  cash 
transactions  will  also,  necessarily  be  entered  in  the  cash 
book,  but  posted  from  only  one  of  the  original  entries. 

198 


315.    Changing  books  from  rfngle  to  double  entry. 

E.  C.  Day  and  J.  B.  Davis,  partners,  after  conducting 
a  retail  clothing  business  for  one  year  and  keeping  their 
books  by  single  entry  decide  to  change  their  books  to 
double  entry.  The  only  ledger  accounts  kept  were  with 
cash,  customers,  purchase  creditors  and  proprietors. 
Day's  original  investment  was  $15,000.00  and  Davis' 
$10,000.00,  their  profits  or  losses  to  be  shared  in  propor- 
tion to  their  respective  investments,  i.  e.  3/5  and  2/5. 

From  various  sources  of  information  the  following 
Statement  of  Assets  and  Liabilities  is  prepared: 


ASSETS 

Cash 

Notes  Receivable  . 

Accrued  Interest— Notes  Receivable 
Accounts  Receivable 
Merchandise  (per  Inventory) 
Prepaid  Insurance 
Real  Estate 
Furniture  and  Fixtures 

Total  Assets 
LIABILITIES 

Notes  Payable 

Accounts  Payable 

Accrued  Interest— Notes  Payable 

Total  Liabilities 

Net  Worth  at  close  of  period 

Represented  by: 

£.  C.  Day's  Capital  Account 

Balance  at  beginning  of  period  $15,000.00 
Add  3-5  Net  Profit  2,892.00 

Balance  at  close  of  period 
J.  B.  Davis'  Capital  Account 

Balance  at  beginning  of  period 
Add  2-5  Net  Profit 

Balance  at  close  of  period 


$  1,890.00 

1,300.00 

60.00 

4,070.00 

17,000.00 

150.00 

11,67500 
2,000.00 


5,000.00 

3,250.00 

75.00 


10,000.00 
1,928.00 


199 


$38,14500 


8,32500 
29,820.00 


17,892.00 


11,928.00 


$29,820.00 


il 


[ 


316-318 


OPENING  ENTRIES 


316.  Note— The  net  profit  in  single  entry,  when  no 
revenue  and  expense  accounts  are  kept,  is  found  by  tak- 
ing the  difference  between  the  net  worth  at  the  begin- 
ning and  close  of  the  period. 


$  1,300.00 

60.00 

17,000.00 

150.00 

11,67500 

2,000.00 


$  5,000.00 

75.00 

2,892.00 

1,928.00 


317.     Entry  to  be  made  on  single  entry  books. 

Notes  Receivable  (Itemize) 
Accrued  Interest— Notes  Receivable 
Merchandise  (per  Inventory) 
Prepaid  Insurance 
Real  Estate 
Furniture  and  Fixtures 
To:  Notes  Payable 

Accrued  Interest— Notes  Payable 
E.  C.  Day— Capital  Account— for  Net  Gain 
J.  B.  Davis— Capital  Account— for  Net  Gain 
To  open  accounts  with  the  assets  and  liabilities  not  previously 
carried  on  the  books,  in  changing  the  books  from  single  to  double 
entry  and  to  credit  each  partner's  capital  account  with  his  share  ot  the 
net  profits  for  the  year  ending ^9 

Note—It  is  readily  understood  that  the  debits  and 
credits  in  the  above  entry  are  not  equal  in  amount,  as 
the  entry  is  made  on  the  single  entry  books  to  place  them 
on  a  double  entry  basis. 

318.  Entry  to  be  made  on  Single  Entry  books  trans- 
ferring accounts  to  Double  Entry  books. 

Notes  Payable  $  5,000.00 

Accounts  Payable  3,250.00 

Accrued  Interest— Notes  Payable  0^^*°^ 

E.  C.  Day— Capital  Account  17,892.00 

T.  B.  Davis— Capital  Account  11,928.00 

To:  Cash  $1,890.00 

Notes  Receivable  1,300.00 

Accrued  Interest— Notes  Receivable  00.00 

Accounts  Receivable  4,070.00 

Merchandise  (per  Inventory)  17,000.00 

Prepaid  Insurance  150.00 

Real  Estate  11,675.00 

Furniture  and  Fixtures  2,000.00 

The  above  entries  made  to  close  the  accounts  carried  on  the  single 

entry  books,  which  have  been  transferred  to  a  new  set  of  books  to  be 

kept  by  double  entry. 

200 


CORPORATION STOCK    PAID   IN    FULL  319-32O 

319.     Entry  to  be  made  on  new  books  to  be  kept  by 
Double  Entry. 

E.  C.  Day  and  J.  B.  Davis,  partners  conducting  a  retail  clothing 

business  located  at under  the  firm  name  of 

bay  &  Davis  have  on  this day  of 19 opened  a 

new  set  of  books  and  changed  their  system  of  bookkeeping  from 
single  to  double  entry.  The  partners  agree  to  share  the  profits  or 
losses  m  proportion  to  their  respective  interests  on  this  date  as  shown 
by  the  following  statement  of  assets  and  liabilities,  taken  from  the 
books  formerly  kept  by  single  entry  after  making  the  entry  changing 
them  from  single  to  double  entry. 

Cash 

Notes  Receivable  (Itemize) 

Accrued  Interest — Notes  Receivable 

Accounts  Receivable  (Itemize) 

Merchandise  (per  Inventory) 

Prepaid  Insurance 

Real  Estate 

Furniture  and  Fixtures 

To:  Notes  Payable  5,000.00 

Accounts  Payable  3,250.00 

Accrued  Interest — Notes  Payable  7Soo 

E.  C.  Day — Capital  Account  17,^2x30 

J.  B.  Davis — Capital  Account  11,928.00 

To  place  on  ledger  No.  ..• (new  ledger)  the  accounts  trans- 
ferred from  ledger  No (old  ledger). 


$  1,890.00 

1,300.00 

60.00 

4,070.00 

17,000.00 

150.00 

11,67500 

2,000.00 


320.     Opening  Entry  for  Corporation  where  entire 
authorized  capital  stock  is  issued  and  fully  paid  in  cash. 

A  corporation  is  formed  under  the  name  of  The  Gen- 
eral Packing  Company  with  a  cash  paid  up  capital  of 
$200,000.00. 
Entry. 

Cash  $200,000.00 

To  Capital  Stock  $200,000.00 

The  above  entry  made  to  open  the  books  of  The  General  Packing 

Company  located  at organized  on  the 

day  of 19 under  the  laws 

of  the  state  of  Ohio  with  an  authorized  capital  stock  of  $200,000.00 
divided  into  2,000  shares  with  a  par  value  of  $100.00  each,  all  of  said 
stock  having  been  subscribed  and  fully  paid  as  follows: 

Note — Optional  as  to  showing  names  and  amounts 
for  each  individual  stockholder. 


201 


\l 


I, 


ll.-'. ' 


321-323 


OPENING  ENTRIES 


321.  Entries  for  opening  books  of  corporation  is- 
suing preferred  and  common  stock  and  for  other  entries 
covering  the  foUowing  transactions:  stock  sold  for  cash 
at  par ;  stock  issued  in  payment  for  plant  purchased ;  stock 
donated  by  incorporators  to  be  sold  to  provide  working 
capital ;  donated  stock  sold  at  both  discount  and  premium ; 
bonds  issued  and  sold  at  a  discount  with  common  stock 
bonus;  stock  issued  in  payment  of  promotion  expenses; 
stock  sold  at  premium;  stock  taken  back  in  settlement 
of  debt  of  stockholder;  stock  sold  on  the  instalment 
plan;  authorized  stock  increased  and  decreased  and  for 
closing  books  of  company  selling  plant  to  corporation. 
322.     The    N.    W.    Auto    Accessories    Company    of 

Toledo,    Ohio    was    incorporated under    the 

laws  of  the  state  of  Ohio  with  an  authorized  capital  stock 
of  $500,000.00  divided  into  2,000  shares  of  preferred  and 
3,000  shares  of  common  stock  with  a  par  value  of  $100.00 

each. 

Entry  to  place  authorized  stock  on  books. 

Capital  Stock,  Preferred— Unissued  $200,000.00 

Capital  Stock,  Common— Unissued  .      300,000.00 

^To:  Capital  Stock,  Preferred-Authorized  ^^'^'^ 

Capital  Stock,  Common— Authorized  ^    '^^ 

The  above  entry  made  to  open  the  books  of  account  of  The  N.  W. 
AuJ^'IctZrL  Company  located  ^tTo.edo.^Oh.o.^or^gan^^^^^^^ 

of* the* State  of ^Oh?o' with  an  authorized  capital  stock  of  $500,000.00 
divided  into  2,000  shares  of  preferred  and  3.000  shares  of  common 
stock  with  a  par  value  of  $100.00  each. 

323.     Fifty  shares  of  the  preferred  stock  were  sold 
for  cash  at  par. 
Entry. 

^^  To 'coital  Stock,  Preferred— Unissued  $5,000.00. 
For  fifty  shares  of  Preferred  Stock  sold  for  cash. 

202 


STOCK  ISSUED  IN  PURCHASE  OF  PLANT 


324 


324.  Subsequent  to  incorporation  J.  H.  Smith  and" 
F.  H.  Fox,  two  of  the  incorporators  who  are  equal  part- 
ners in  the  firm  of  Smith  &  Fox  Manufacturing  Com- 
pany, manufacturing  along  a  simliar  line,  proposed  by  the 
new  company,  made  a  proposition  to  sell  to  the  company 
for  the  sum  of  $350,000.00  payable  $100,000.00  in  preferred 
stock  and  $250,000.00  in  common  stock,  all  right  title 
and  interest  in  the  net  assets  of  Smith  &  Fox  Manufac- 
turing Company  exclusive  of  cash.  These  net  assets 
exclusive  of  cash  $2,100.00  were  carried  on  the  books 
of  the  co-partnership  at  a  valuation  of  $300,000.00,  as 
shown  on  the  following  statement. 


203 


I!    . 


bn' 


If- 

V 


,1! 

'.J 

m 


1 1 


324  OPENING  ENTRIES 

SMITH  &  FOX  MANUFACTURING  COMPANY 

BALANCE  SHEET 

As  of 19. . . . 


ASSETS 
Current  Assets 

Cash 

Imprest  Fund 
In  £ank 


$     100.00 
2,000.00 


Accounts   Receivable— Customers   60,708.38 
Less  Reserve  for  Bad  Accounts  5,000.00 


2,100.00 


55,708.38 


Inventories 

Raw  Material 
Work  in  Process 
Finished  Product 


Deferred  Charges  to  Operation 

Prepaid  Insurance 


35,438.90 
40,360.72 
34,792.80 


110,592.42 


560.00 
Heat7  Light  and  Power  Supplies        430.00 


990.00 


Fixed  Assets 

Grounds 

Buildings  100,000.00 

Less  Reserve  for 

Depreciation  5,000.00 


Machinery  70,380.00 

Less  Reserve  for 
Depreciation  18,076.00 


Perishable  Tools 

Patterns  10,000.00 

Less  Reserve  for 

Depreciation  4,000.00 


5,000.00 


95,000.00 


52,304.00 
8,846.50 


STOCK  ISSUED  IN  PURCHASE  OF  PLANT 


324 


Office  Furniture  and 
Fixtures 

Less  Reserve  for 
Depreciation 

Total  Assets 

LIABILITIES 
Current  Liabilities 
Notes  Payable 
Accounts  Payable — P 
Creditors 

Net  Worth 

Represented  by: 

J.  H.  Smith— Capital 

F.  H.  Fox— Capital  A 

1,500.00 
300.00 

1,200.00 

urchase 

Account 
ccount 

$  30,000.00 
5,641.30 

168,350.50 

$337,741.30 

151,050.00 
151,050.00 

35,641.30 

302,100.00 

$337,741.30 

6,000.00 


It )' 


204 


205 


'i'l 


I'm  ;r 


325 


OPENING  ENTRIES 


$  60,708.38 

35,438.90 

40,360.72 

34,792.80 

560.00 

430.00 

5,000.00 

100,000.00 

70,380.00 

8,846.50 

10,000.00 

1,500.00 

50,000.00 


$  30,000.00 
5,64130 
5,000.00 
5,000.00 
18,076.00 
4,000.00 

300.00 
175,000.00 
175,000.00 


Entry 

Accounts  Receivable — Customers 
Raw  Material — Inventory 
Work  in  Process 
Finished  Product      " 
Prepaid  Insurance 
Heat,  Light  and  Power  Supplies 
Grounds 
Buildings 
Machinery- 
Perishable  Tools 
Patterns 
Office  Furniture  and  Fixtures 

Good  Will 

To:  Notes  Payable   ^       ^      ,         n    a-^ 
Accounts  Payable— Purchase  Creditors 
Reserve  for  Bad  Accounts 
Reserve  for  Depreciation  of  Buildings 
Reserve  for  Depreciation  of  Machinery 
Reserve  for  Depreciation  of  Patterns 
Reserve  for  Depreciation  of  Office 

Furniture  and  Fixtures 
J.  H.  Smith 

F  H   Fox  "  " 

Tn  transfer  to  The  N.  W.  Auto  Accessories  Company  by  the  above 
menLVeTvtdo?s^heir  right  title  -d  interest  i.  all  the  assets    ex 
elusive  of  cash)  includmg  Good  WiU  full^^  set^^^^^^^^^^^ 

lut^ion  of 'the  Board*  of 'Directors  recorded  in  minute  book  page 

J.  H.  Smith  ^'7?'^-^ 

F  H  Fox  175,000.00 

To  Capital  Stock— Preferred,  Unissued  $100,000.00 

«'  "        Common,  Unissued  250,000.00 

For  1,000  shares  of  preferred  stock  and  2,500  shares  of  common 
stock  issued  equally  to  the  vendors  in  payment  of  the  net  assets  pur- 
chased per  the  above  mentioned  bill  of  sale. 

325.  For  the  purpose  of  providing  working  capital, 
the  proposal  of  Smith  &  Fox  having  been  accepted  and 
the  stock  issued  by  the  company,  the  vendors  donate  to 
the  treasury  of  the  company  $40,000.00  of  the  common 
stock  received  by  them. 
Entry 

Treasury  Stock,  Common  $40,000.00 

To  Reserve  for  Working  Capital  ^  ^^^     ^t    w  ^'?^ 

For  400  shares  of  preferred  capital  stock  of  The  N.  AV.  Auto 
Accessories  Company  donated  by  Messrs.  Smith  &  Fox  for  the  pur- 
pose of  providing  working  capital. 

206 


TREASURY  STOCK 


326-329 


326.  One  hundred  shares  of  the  stock  so  donated 
are  sold  from  the  treasury  at  a  discount  of  25%. 
Entry 

Cash  $7,500.00 

Reserve   for  Working  Capital  2,500.00 

To  Treasury  Stock,  Common  10,000.00 

For  100  shares  of  treasury  stock  sold  at  a  discount  of  25%. 

327,  For  the  purpose  of  making  needed  additions 
to  the  plant  the  company  authorized  an  issue  of  first 
mortgage  bonds  which  were  sold  at  90,  the  purchasers 
receiving  with  each  bond  a  bonus  of  15%  in  common 
stock. 

Entry 


$90,000.00 
10,000.00 
15,000.00 


Cash 

Discount  on  Bonds 

Reserve  for  Working  Capital 

To:  Bonds  Payable  100,000.00 

Treasury  Stock,  Common  15,000.00 

For  the  issue  and  sale  of  $100,000.00  first  mortgage  bonds  at  90, 
dated  January  2,  1914,  payable  in  ten  years,  with  interest  at  5%  pay- 
able annually,  and  also  the  issue  of  150  shares  of  common  stock  held 
in  the  treasury  as  a  bonus  on  the  sale  of  the  bonds. 

328.  Fifty  shares  of  common  stock  were  issued  to 
J.  B.  King,  the  promotor  for  services  in  organizing  the 
company  and  selling  stock. 

Entry 

Organization  Expense  $5,000.00 

To  Capital  Stock,  Common — Unissued  5,000.00 

For  50  shares  of  stock  issued  to  J.  B.  King  for  services  in  organiz- 
ing company  and  selling  stock. 

329.  One  hundred  fifty  shares  of  the  common  sroGk 
are  sold  for  cash  at  a  premium  of  10%. 

Entry 

Cash  $16,500.00 

To:  Capital  Stock,  Common — Unissued  15,000.00 

Premium  on  Capital  Stock  1,500.00 

For  150  shares  Common  Stock  sold  at  a  premium  of  10%. 

207 


'I 


330333  OPENING  ENTRIES 

330.  One  hundred  fifty  shares  of  treasury  stock  are 
sold  for  cash  at  a  premium  of  10^0. 

Entry 

P   jj  $16,500.00 

^' To:  Treasury  Stock,  Common  '?'?CS'S 

Reserve  for  Workmg  Capital  .  rr.ir 

For  ISO  shares  of  treasury  stock  sold  at  a  premium  of  io7o. 

331.  A  certain  stockholder,  who  became  indebted  to 
the  company  for  $8,000.00  giving  his  note  for  that  amount 
and  depositing  $10,000.00  common  stock  with  the  com- 
pany as  collateral  to  his  indebtedness,  being  unable  to 
meet  his  obligation  when  it  became  due.  forfeits  his 
entire  $10,000.00  in  stock,  in  settlement  of  the  claim. 

Entry 

Treasury  Stock  Common  $10,000.00 

To:  Notes  Receivable  200000 

Treasury  Stock  Discount  .  ^.ooo.w 

For  100  shares  of  common  stock  transferred  to  company  m  s^tl^ 

given  1/.'!'.  T.  .T." .  T, : : ; : ; : : : : : : se^r^d '  bV ' ii;;'  abovf  stock. 

332.    Two  hundred  shares  of  common  stock  are  sold 
on  the  instalment  plan,  payable  within  one  year  in  equal 
quarterly  payments. 
Entry 

Subscriptions  to  Capital  Stock,  Common      $20,000.00 

To  Subscribed  Capital  Stock,  Common  T  'T'2^ 

For  200  shares  of  common  stock  sold  on  the  instalment  plan  to  be 
paid  within  one  year  in  equal  quarterly  instalments,  subscribed  as 
follows:     (Give  name  and  number  of  shares  each;. 

Note— If  desired,  a  separate  account  may  be  opened 
with  each  instalment. 

333.     Instalment  No.  i  for   25%    of    the    shares  of 
common  stock  is  paid  in  cash. 

208 


I 


STOCK  SOLD  ON   INSTALMENTS 


334-336 


Entry 


Cash  $5,000.00 

To  Subscriptions  to  Capital  Stock,  Common  $5,000.00 

For  instalment  No.  i  of  25%  paid  on  stock  sold  on  the  instalment 
plan  as  follows:     (Give  names  and  amounts  paid). 

334.  The  200  shares  of  common  stock  sold  on  the 
instalment  plan  having  been  paid  in  full  and  entries  made 
for  each  instalment  at  time  of  payment,  stock  certificates 
are  now  issued. 

Entry 

Subscribed  Capital  Stock,  Common  $20,000.00 

To  Capital  Stock,  Common— Unissued  $20,000.00 

For  the  issue  of  200  shares  of  common  stock  sold  on  the  instal- 
ment plan  and  fully  paid. 

Note — Stock  sold  on  the  instalment  plan  should  not 
be  issued  until  fully  paid. 


335.  The  Common  Capital  Stock  is  increased  1,000 
shares. 

Entry 

Capital   Stock,   Common— Unissued  $100,000.00 

To  Capital  Stock,  Common— Authorized  $100,000.00 

To  increase  the  common  capital  stock  1,000  shares,  in  accordance 
with  resolution  of  the  Board  of  Directors  recorded  in  minute  book 

page and  certificate  authorizing  the  increase   of  capital  stock 

issued  by  the  state  of  Ohio. 

336.  The  Common  Capital  Stock  is  decreased  500 
shares. 

Entry 

Capital  Stock,  Common— Authorized  $50,000.00 

To  Capital  Stock,  Common— Unissued  $50,000.00 

To  decrease  the  common  capital  stock  500  shares  in  accordance 
with  resolution  of  the  Board  of  Directors  recorded  in  minute  book 

page and    certificate  authorizing   the    decrease    of    capital    stock 

issued  by  the  state  of  Ohio. 

209 


337 


OPENING  ENTRIES 


*' 


III 


Fi* 


I' I 


¥ 


337.     Smith   &  Fox  Manufacturing   Company  make 
the  necessary  dissolution  entries  on  their  books. 

Entries 

J.  H.  Smith— Capital  Account  $1,050.00 

F.    H.    Fox  "  "  1,050.00 

To:  Imprest  Cash  $    loooo 

Bank  2,000.00 

For  equal  withdrawal  of  cash  on  hand  at  time  of  selling  business. 

Good  Will  $50,000.00 

To:  J.  H.  Smith— Capital  Account  $25,000.00 

F.  H.  Fox  "  "  25,000.00 

Representing  the  excess  valuation  placed  on  the  net  assets  trans- 
ferred to  The  N.  W.  Auto  Accessories   Company. 


u 


« 


M 


(« 


.00 
.00 
.30 
.00 
.00 
,00 
.00 


The  N.  W.  Auto  Accessories  Company  $350,000 

Notes  Payable  30,000. 

Accounts  Payable  5i64i- 

Reserve  for  Bad  Accounts  5,ooo. 

"         "     Depreciation — Buildings  5»ooo, 

*•  — Machinery  18,076 

— Patterns  4>ooo 

— Office    Furniture 

and  Fixtures  300.00 

To:  Accounts  Receivable-^Customers 
Raw  Material 
Work  in  Process 
Finished  Product 
Prepaid  Insurance 
Heat,  Light  and  Power  Supplies 
Grounds 
Buildings 
Machinery 
Perishable  Tools 
Patterns 

Office  Furniture  and  Fixtures 
Good  Will 
To  transfer  the  assets  and  liabilities  to  The  N.  W. 
sories  Company  as  per  contract  and  bill  of  sale  dated.. . 


$60,708.38 

35438.90 

40,360.72 

34,792.80 

560.00 

430.00 

5,000.00 

100,000.00 

70,380.00 

8,846.50 

10,000.00 

1,500.00 

50,000.00 

Auto  Acces- 


$100,000.00 


Preferred  Stock— The  N.  W.  Auto  Acces- 
sories Company 
Common   Stock— The   N.  W.  Auto  Acces- 
sories Company  250,000.00 
To  The  N.  W.  Auto  Accessories  Company  $350,000.00 
For  1,000  shares  of  preferred  stock  and  2,500  shares  of  common 
stock  of  The  N.  W   Auto  Accessories  Company  received  in  payment 
for  the  above  net  assets  transferred  to  it  as  per  contract. 


210 


DISSOLUTION  OF  PARTNERSHIP 


337 


$175,000.00 
175,000.00 


$100,000.00 


J.  H.  Smith — Capital  Account 
F.  H.  Fox 

To:  Preferred  Stock — The  N.  W.  Auto 
Accessories  Co. 
Common  Stock — The  N.  W.  Auto 
Accessories  Co.  250,000.00 

To  close  the  stock  accounts  and  the  partners'  capital  accounts 
upon  the  dissolution  of  the  firm  of  Smith  &  Fox  Manufacturing  Com- 
pany the  above  stock  of  The  N.  W.  Auto  Accessories  Company  having 
been  issued  to  J.  H.  Smith  and  F.  H.  Fox  equally. 


211 


A' 


I  i 


I 


PART  6 


FINANCIAL  STATEMENTS 


••I 


I 


E>  i 


W 


I 


I  1 


.(  ' 


i.k' 


FINANCIAL  STATEMENTS 


338.  The  following  forms  and  references  339  to  359 
inclusive  furnish  illustrations  of  financial  statements  and 
the  details  as  to  their  preparation,  showing  the  classifica- 
tion of  accounts  and  their  order  of  arrangement. 

The  balance  sheet  may  show  the  assets  listed  first 
and  the  liabilities  below  as  illustrated  in  342  and  345;  or 
the  assets  on  the  left  and  the  liabilities  on  the  right,  as  in 

353  and  354. 

As  to  the  order  of  arrangement  of  the  accounts  of  the 
balance  sheet,  the  author  suggests  the  following,  as  shown 
in  detail  in  342-345-353-     (Also  see  5  to  9). 

Assets. 

I — Current  Assets. 

2 — Deferred  Charges  to  Operation. 

3 — Fixed  Assets. 

4 — Intangible  Assets. 

Liabilities. 

I — Current  Liabilities. 

2 — Fixed  Liabilities. 

3— Net  Worth. 

The  following  order  of  arrangement  shown  in  detail 
in  354  is  found  to  be  quite  generally  used  by  large  cor- 
porations publishing  their  statements. 

215 


u. 


338 


FINANCIAL   STATEMENTS 


Assets. 

I — Fixed  Assets. 
2 — ^Intangible  Assets. 
2 — Deferred  Charges  to  Operation. 
4 — Current  Assets. 
Liabilities, 

I — Capital  Stock. 
2- — Fixed  Liabilities. 
3 — Current  Liabilities. 
4 — Surplus. 

Statements    for    Partnership    Conducting    a    Retail 

Business. 

Nos.  339  to  344  inclusive  are  given  to  show  the 
details  of  the  preparation  of  balance  sheets  and  profit  and 
loss  statements  for  a  partnership  conducting  a  retail  busi- 
ness v^hen  no  cost  system  is  maintained,  as  follows: 

No.  339  shows  the  working  details. 

Nos.  340-341  give  detailed  working  sheet  instructions 
together  with  entries  for  closing  the  books,  resulting  in 
the  following  exhibits  and  schedule. 

No.  342 — Exhibit  A — Balance  Sheet. 

No.  343 — Schedule  i,  supporting  Exhibit  A— Adjust- 
ing entries  of  partners'  accounts  affecting  prior  periods. 

]S^o.  344 — Exhibit  B  —  Profit  and  Loss  Statement, 
showing  operating  results  and  percentages. 

Statements  for  Department  Store. 

Nos.  345  to  348  inclusive  show  exhibits  and  sched- 
ules setting  forth  the  financial  condition  and  results  from 

216 


GENERAL  COMMENTS 


338 


Operation,  of  a  corporation  conducting  a  department  store 
where  a  cost  system  is  maintained,  as  follows: 

No.  345 — Exhibit  A — Balance  Sheet. 

No.  346 — Schedule  i,  supporting  Exhibit  A — Mer- 
chandise Inventories. 

No.  347 — Exhibit  B  —  Profit  and  Loss  Statement 
showing  operating  results  and  percentages. 

No.  348 — Schedule  i,  supporting  Exhibit  B — Distri- 
bution of  Departmental  Expenses. 

Statements  for  Manufacturing  Business. 

Nos.  349  to  359  inclusive  are  given  to  show  the  de- 
tails of  the  preparation  of  a  balance  sheet  and  profit  and 
loss  statement  for  a  corporation  conducting  a  manufac- 
turing business;  first,  when  a  cost  system  is  not  main- 
tained; second,  when  one  is  maintained,  as  follows: 

No.  349  illustrates  entries  to  be  made  monthly  or  at 
closing  periods,  depending  upon  whether  or  not  profit 
and  loss  statements  are  prepaid  monthly,  for  reserves  and 
extinguishment  of  intangible  assets. 

No.  350 — Working  Sheet. 

Nos.  351  and  352 — Working  Sheet  instructions  and 
entries  for  closing  books. 

^o.  353 — Exhibit  A  —  Balance  Sheet,  illustrating 
order  of  arrangement  described  in  7,  8,  9. 

No.  354 — Exhibit  A  —  Balance  Sheet,  illustrating 
order  of  arrangement  described  in  11  and  12. 

No-  355 — Schedule  i,  supporting  Exhibit  A — Ad- 
justing entries  afifecting  prior  periods. 

No.  356 — Exhibit  B — Profit  and  Loss  Statement 
showing  operating  results  when  no  cost  system  is  main- 
tained and  when  sales  are  not  subdivided. 


I  -I 


217 


338 


FINANCIAL   STATEMENTS 


No.  357— Schedule  i,  supporting  Exhibit  B— Ex- 
penses, when  no  cost  system  is  maintained. 

No,  3c;8 — Exhibit  B  —  Profit  and  Loss  Statement 
showing  operating  results  and  percentages,  when  a  cost 

system  is  maintained. 

No.  359— Schedule  i,  supporting  Exhibit  B— Distri- 
bution of  direct  and  indirect  charges  to  manufacturing 
together  with  departmental  overhead  expenses,  when  a 
cost  system  is  maintained. 


2l8 


■ 


WILSON  AND  CRANE 


339* 


WORKING  SHEET 


Showing  details  in  preparing  restflts  to  be  transferred  to  Balance  Sheet  and  Profit  and  Loss  Exhibits. 


Acct. 

No.    ASSETS 

I — ^^Cash — Imprest  Ftind 

2 — Cash—Cashier's  Change 

3 — ^^Cash — In  Bank 

4 — Accounts  Receivable — C.  O.  D.'s 

5 — Accounts  Receivable — Customers 

6 — Reserve  for  Doubtful  Accounts 

7-^Inventory — Dry  Goods 

8 — Inventory — Boots  and  Shoes 
.  ^—Inventory — ^Clothing 
lo— Deferred  Charges  to  Operation 
II — Furniture  and  Fixtures 
i2^Reserve  for  Depreciation— Furniture  and  Fixtures 
13— Good  Will 

LIABILITIES 
20 — Notes  Payable 
21 — ^Accounts  Payable 
22r— Accrued  Interest 
23 — ^J.  H.  Wilson — Capital  Account 

24 — S.  F.  Crane — Capital  Account 

25 — ^Profit  and  Loss 

PROFIT  AND  LOSS  REVENUES 
30 — Sales— Dry  Goods 
31 — Sales — Boots  and  Shoes 
32— Sales — Clothing 
33 — Cash  Discounts  Earned 
34— Miscellaneous  Earnings 

PROFIT  AND  LOSS  COSTS 
40— Purchases — Dry  Goods 
41 — Purchases — Boots  and  Shoes 
42 — Purchases — Clothing 
43 — Administrative  and  Selling  Expenses 
44 — Cash  Discounts  Allowed 
45 — Interest 

Balance — Profit  and  Loss  Account 


EXPENSES 

50 — Salaries^Management 

51 — Salaries — Office  and  General 

52 — Office  Supplies  and  Expense 

53 — Doubtful  Accounts   (Reserve  Charge) 

54 — Salaries — Sales  Help 

55 — Advertising 

56— Rent 

57 — Heat  and  Light 

58 — Insurance 

59 — Taxes 

60— Depreciation- Furnt.  &  Fixt.   (Reserve  Charge) 

61 — Delivery  Expense 

62 — Incidentals 


$ 


Trial    Balance 
Before  Closing 


A 
Dr. 


25.00 

100.00 

4,052.00 

985.00 

14,340.23 


10,000.00 
10,000.00 


751.10 
810.40 
691.04 


45,627.14 
47,410.90 
45,527.10 

257.16 
510.00 


4,000.00 
1,800.00 

950.25 

1,377.83 

11,214.10 

7,160.04 

3,600.00 

900.00 
1,850.00 

450.00 
1,000.00 
1,875.10 

161.40 


Totals 


$217,425.79 


B 
Cr. 


1,265.10 


Accounts  Affected  by 

Inyentories,  Deferred 

Charges  &  Accrued  Items 


C 
Dr. 


2,000.00 


12,000.00 
8,975.20 

25,108.10 

25,108.10 


45,976.10 

47,521.07 

46,538.90 

2,792.12 

141. 10 


15,210.00(2) 

14,625.10(2) 

15,723.40(2) 

700.00(2) 


D 
Cr. 


210.00(3) 


210.00(4) 


15,210.00(4) 
14,625.10(4) 
15,723.40(4) 


217,425.79    II    46,468.50 


100.00(4) 


600.00(4) 


46,468.50 


Assets 


Liabilities 


E 
Dr. 


25.00(6) 

100.00(6) 

4,052.00(6) 

985.00(6) 

14,340.23(6) 

15,210.00(6) 
14,625.10(6) 
15,72340(6) 
700.00(6) 
10,000.00(6) 

10,000.00(6) 


F 
Cr. 


1,265.10(6) 


Expenses        Revenues 


G 
Dr. 


2,000.00  ( 6 ) 


12,000.00(6) 
8,975.20(  6  ) 

2I0.00(  6 ) 

25,io8.io(  6 ) 
►5,547.11(10) 
25,io8.io(  6) 
-^5,547.12(10) 


H 
Cr. 


f 


,4^0,417.14  (9) 

32,785.80  (9) 

>29,8o3.70  (9) 


<I30,4I7.I4 
■<  32,785.80 

■<  29.803.70 


(7) 

(7) 

^  ,,       (7) 
>-35,638.72(8) 

257.16  (7) 

720.00  (7) 

'11,094.23 


85,760.73 


140,716.75 


85,760.73 


4,000.00  (7) 
1,800.00  (7 
850.25  (7 

1,377.83  (7 
11,214.10  (7 

7,160.04  (7 
3,600.00  (7 

900.00  (7 
1,250.00  (7 

450.00  (7 
1,000.00  (7 
1,875.10  (7 

16140  (7 


45.225.00(7) 

46,710.67(7) 

45,847.86(7) 

2,792.12(7) 

141.10(7) 

'Close  to 
Sales 

Xlose 

to 
T.  &  L. 


Close 
to 
&L. 


V- 


140,716.75 


^  -fo5>638.72 


I 


219 


WILSON  AND  CRANE 


340.  INSTRUCTIONS  FOR  PREPARING  BALANCE  SHEET 
AND  PROFIT  AND  LOSS  STATEMENT. 

I — In  columns  A  and  B  are  entered  the  items  constituting  the  trial 
balance  of  the  general  ledger,  before  closing,  charges  for  Reserve 
for  Bad  Accounts,  and  Depreciation  on  Plant  accounts  having 
been  previously  made.  The  inventories,  deferred  charges  and 
accrued  items  at  the  close  of  the  period  are  as  follows: 


Inventories 

Dry  Goods 
Boots  and  Shoes 
Clothing 

Deferred  Charges 

Office  Supplies  and  Expense 
Unexpired  Insurance 
Accrued  Items  Payable 
Interest 


$15,210.00 
14,625.10 
15,723.40 

100.00 
600.00 

210.00 


2— Enter  in  column  C,  all  inventories  and  deferred  charges  to  opera- 
tion.   See  items  marked  (2). 

3— Enter  in  column  D,  all  accrued  items  payable.  See  items  marked 
(3). 

4— Enter  in  columns  C  and  D,  the  contra  entries  to  the  operating 
accounts  affected  by  inventories,  deferred  charges  and  accrued 
Items,  mentioned  in  Nos.  2  and  3.    See  items  marked  (4). 

5— Foot  columns  C  and  D,  which  should  equal  each  other. 

6— Carry  all  assets  and  liabilities  from  columns  A,  B,  C,  and  D,  into 
columns  E,  and  F,  respectively.     See  items  marked  (6). 

7— Carry  all  operating  accounts  from  columns  A,  B,  C  and  D  into 
columns  G  and  H.    See  items  marked  (7). 

8 — Close  the  sum  of  the  individual  expense  accounts  No.  50  to  No. 
62  inclusive  into  account  No.  43. 

9— Close  accounts  Nos.  40,  41,  42  into  accounts  Nos.  30,  31  and  32 

respectively. 
10— Foot  accounts  Nos.  30  to  45  inclusive,  omitting  accounts  No    40 
to  No.  42  inclusive.    The  difference  between  the  debit  and  credit 
footmgs   thus   obtained   should   represent   the   net  profit   or   loss 
which  should  be  closed  to  accounts  No.  23  and  No.  24. 
II — Foot  columns  E  and  F,  which  should  equal  each  other. 
12— After  thus  proving  the  work  the  Balance  Sheet  and   Profit  and 
Loss  Exhibits  may  be  prepared.     (See  342-344.) 

341.    ENTRIES  FOR  CLOSING  BOOKS. 

I— Dr.  Account  No.  43,  Administrative  and  Sell- 
ing Expenses  $35,638.72 
Lr.  the  mdividual  accounts  No.  50  to  No. 
62  inclusive 
2--Dr.  Account  No.  30  Sales— Dry  Goods  30,417.14 
Cr.  Account  No.  40,  Purchases — Dry 


Goods 


30,417.14 


221 


I    ' 


9— Dr. 


3 — Dr.  Account  No.  31  Sales — Boots  and 

Shoes  32,785.80 

Cr.  Account  No.  41  Purchases — Boots 

and  Shoes  32,78580 

4— Dr.  Account  No.  32  Sales— Clothing  29,803.70 

Cr.  Account  No.  42  Purchases — Clothing  29,803.70 

5 — Dr.  Account  No.  30  Sales — Dry  Goods  14,807.86 

Cr.  Account  No.  25  Profit  and  Loss  14,807.86 

6 — Dr.  Account  No.  31  Sales— Boots  and  Shoes     13,924.87 

Cr.  Account  No.  25  Profit  and  Loss  13,924.87 

7 — Dr.  Account  No.  32  Sales — Clothing  16,044.16 

Cr.  Account  No.  25  Profit  and  Loss  16,044.16 

8 — Dr.  Account  No.  33  Cash  Discounts  Earned        2,792.12 

Cr.  Account  No.  25  Profit  and  Loss  2,792.12 

Account  No.  34  Miscellaneous  Earnings  141. 10 

Cr.  Account  No.  25  Profit  and  Loss  141. 10 

10 — Dr.  Account  No.  25  Profit  and  Loss  35,638.72 

Cr.  Account  No.  43  Administrative  and 

Selling  Expenses  35,638.72 

II — Dr.  Account  No.  25  Profit  and  Loss  257.16 

Cr.  Account  No.  44  Cash  Discounts 

Allowed  257.16 

12 — Dr.  Account  No.  25  Profit  and  Loss  720.00 

Cr.  Account  No.  45  Interest  720.00 

13 — Dr.  Account  No.  25  Profit  and  Loss  11,094.23 

Cr.  Account  No.  23  J.  H.  Wilson  capital 

account  5,547.11 

Cr.  Account  No.  24  S.   F.    Crane   capital 
account 
14 — After   posting    the    above   entries    the    Profit 
should  show  as  follows: 


5.547.12 
and    Loss    account 


PROFIT  AND  LOSS  ACCOUNT. 


Dr. 

Administrative  and  Sell- 
ing Expenses  $35,638.72 

Cash  Discount  Allowed        257.16 

Interest  720.00 

Balance  transferred  to 
Partners'  Capital  Ac- 
counts 11,094.23 


Gross  Profits 
Dry    Goods 
Boots  and  Shoes 
Clothing 
Cash  Discount  Earned 
Miscellaneous  Earnings 


Cr. 

$14,807.86 

13,924.87 

16,044.16 

2,792.12 

141. 10 


$47,710.11 


$47,710.11 


15 


Rule  accounts  No.  23  to  No.  62  inclusive,  bringing  down  bal- 
ances. The  balances  of  those  accounts  affected  by  inventories, 
deferred  charges  or  accrued  items,  should  be  brought  down  as, 
"Inventory  Balance,"  "Deferred  Charges  Balance"  or  "Accrued 
Balance"  respectively,  as  the  case  may  be. 
16 — Prove  the  general  ledger  by  taking  a  trial  balance  before  posting 
transactions  of  the  new  period. 

Note — Closing  entry  No.  i  may  be  omitted  and  in  entry  No.  10  instead 
of  crediting  account  No.  43,  credit  the  individual  accounts  No.  50 
to  No.  62  inclusive. 


222 


34a- 


WILSON  AND  CRANE 

EXHIBIT  A. 
BALANCE  SHEET 

As  of  December  31,  1913. 


4,177.00 


13,07513     i4»o6o.i3 


45,558.50    63,795.63 


700.00 


10,000.00 
2,000.00 


ASSETS. 
Current  Assets 

Cash 

Imprest  Fund  $       25.00 

Cashier's  Change  100.00 

In  Bank  4,052.00 

Accounts   Receivable 

C.  O.  D.'s  985.00 

Customers  14,340.23 

Less  Reserve  for 

Doubtful  Accounts  1,265.10 

Inventories 

Dry  Goods  15,210.00 

Boots  and  Shoes  14,625.10 

Clothing  15,723.40 

Deferred  Charges  to  Operation 

Office  Supplies  and  Expense  100.00 

Unexpired  Insurance  600.00 

Fixed  Assets 

Furniture  and  Fixtures 

Less  Reserve  for  Depreciation 
Intangible  Assets 

Good  Will 

Total  Assets 

LIABILITIES. 
Current  Liabilities 
Notes  Payable 
Accounts  Payable 
Accrued  Interest 

Total  Liabilities 
Net  Worth 

Represented  by: 
J.  W.  Wilson's  Capital 

Balance  December  31,  1912,  as 

adjusted    (see   Schedule   i)   $25,108.10 

Add  K  Net  Profits  for  year 
ended  December  31,  1913 
(see  Exhibit  B)  5,547.11 

Balance  December  31,  1913  30,655.21 

S.  F.  Crane's  Capital 

Balance  December  31,  1912,  as 

adjusted    (see    Schedule    i)    25,108.10 

Add  H  Net  Profits  for  year 
ended  December  31,  1913 
(see  Exhibit  B)  5,547.12 

Balance  December  31,  1913  30,655.22 


8,000.00 


10,000.00 

82,495.63 


12,000.00 

8,975.20 

210.00 


21,185.20 
$61,310.43 


$61,310.43 


223 


I 


\1 


WILSON  AND  CRANE 

SCHEDULE  I— EXHIBIT  A. 

343.    ADJUSTMENT    OF    PARTNERS'    CAPITAL   ACCOUNTS. 

For  entries  belonging  to  prior  periods  made  during  the  year  ended 
December  31,   1913. 

J  .W.  WUson's  Capital  Account 

Balance  December  31,   191 1,  per  books  $26,15310 

Deduct  H  oi  net  adjustments  as  below  shown  1,045.00 


Balance  December  31,  1912,  as  adjusted  (see 
Exhibit  A) 

S.  F.  Crane's  Capital  Account 

Balance   December  31,   191 1,  per  books  $26,15310 

Deduct  -A  of  net  adjustments  as  below  shown  1,045.00 

Balance  December  31,  1912,  as  adjusted  (see 
Exhibit  A) 


ADJUSTMENTS 


$25,108.10 


$25,108.10 


Charges  belonging  to  prior  periods: 

Bad  accounts  charged  off  in   1913,  applicable  to  prior 

periods  $  2,000.00 

Taxes  for  the  year  1912  entered  in  1913  250.&v> 

Item   of   interest   charged   to    Notes    Payable   in    191 1, 

which  should  have  been  charged  to  Interest  Account         160.00 


Total  Charges 
Credits  belonging  to  prior  periods: 

Unexpired  Insurance  premiums  at  December  31,   1912 


2,410.00 


320.00 


Net  Debit  adjustments  to  be  charged  in  equal  amounts 

to  Partners'  Capital  Accounts  as  above  $  2,090.00 


When  the  sales  are  not  subdivided,  the  "Cost  of  Sales"  and  "Gross 
Profits"  would  be  shown  on  the  Profit  and  Loss  Statement  as  follows: 

Sales   $137,783.53 

Cost  of  Sales 

Inventory  at  beginning  of  period $  38,758.80 

Add:    Purchases   99>8o6.34 

138,565.14 
Deduct  Inventory  at  close  of  period 45,558.50 

93,006.64 
Gross  Profit  on  Sales $  44,776.89 

The  remaining  items  would  be  shown  as  illustrated  on  Exhibit  B. 


224 


INTENTIONAL  SECOND  EXPOSURE 


WILSON  AND  CRANE 
SCHEDULE  I— EXHIBIT  A. 

343.    ADJUSTMENT    OF    PARTNERS'    CAPITAL    ACCOUNTS. 

For  entries  belonging  to  prior  periods  made  during  the  year  ended 

December  31,  1913. 


J  .W.  Wilson's  Capital  Account 

Balance   December  31,   1911,  per  books  $26,153.10 

Deduct  H  oi  net  adjustments  as  below  shown  1,045.00 


Balance  December  31,  1912,  as  adjusted  (see 
Exhibit  A) 

S.  F.  Crane's  Capital  Account 

Balance   December  31,   1911,  per  books  $26,153.10 

Deduct   'A  of  net  adjustments  as  below  shown  1,045.00 


$25,108.10 


Balance  December  31,  1912,  as  adjusted  (see 
Exhibit  A) 


$25,108.10 


ADJUSTMENTS 

Charges  belonging  to  prior  periods: 

Bad  accounts   charged  off  in   1913,  applicable  to  prior 

periods  $  2,000.00 

Taxes  for  the  year  1912  entered  in  1913  250.00 

Item   of   interest   charged   to    Notes    Payable   in    191 1, 

which  should  have  been  charged  to  Interest  Account  160.00 


Total  Charges  2,410.00 

Credits  belonging  to  prior  periods: 

Unexpired  Insurance  premiums  at  December  31,   1912         320.00 

I     III  I      ■ 

Net  Debit  adjustments  to  be  charged  in  equal  amounts 

to  Partners'  Capital  Accounts  as  above  $  2,090.00 


When  the  sales  are  not  subdivided,  the  "Cost  of  Sales"  and  "Gross 
Profits"  would  be  shown  on  the  Profit  and  Loss  Statement  as  follows: 

Sales   $137,783.53 

Cost  of  Sales 

Inventory  at  beginning  of  period $  38,758.80 

Add:    Purchases   99,806.34 

^             ^  138,565.14 

Deduct  Inventory  at  close  of  period 45,558.50 

93,006.64 
Gross  Profit  on  Sales $  44,776.89 

The  remaining  items  would  be  shown  as  illustrated  on  Exhibit  B. 


224 


344- 


WILSON  AND  CRANE 

EXHIBIT  B 

PROFIT  AND  LOSS  STATEMENT. 
For  the  year  ended  December  31,  1913 


Revenues  from  Sales 
Dry  Goods 
Boots  and  Shoes 
Clothing 


Touts 


$  45.225.00 
46,710.67 
45,847.86 


$137,783.53 


Sales 

(See 

below) 


30,417.14 
32,785.80 
29,803.70 


93,006.64 


%  of 
Sales 


67 

70 
65 


68 


Gross 
Profits 


14,807.86 
13,924.87 
16,044.16 


44.776.89 


%  of 
Sales 


33 
30 

35 


Net 
Profits 


32 


deduct: 

Ldministrative  and  Selling  Expenses 

Salaries — Management 

Salaries — Office  and  General 

Office  Supplies  and  Expense 

Doubtfiil   Accounts — Reservp   Charge 

Salaries — Sales  Help 

Advertising 

Rent 

Heat  and  Light 

Insurance 

Taxes 

Depreciation — Furniture  and  Fi-<tures 

Delivery  Expense 

Incidentals 


Total  Administrative  and  Selling  Ex- 
penses (26%  of  sales) 
Net  Profits  from  Operations  (6.6%  of  sales) 
Add: 

Other  Revenues: 

Cash  Discounts  Earned 
Miscellaneous  Earnings 


4,000.00 

1,800.00 

850.25 

1,377.83 

11,214.10 

7,160.04 

3,600.00 

900.00 

1,250.00 

450,00 

1,000.00 

1,875.10 

161.40 


35,638.72 


9,138.17 


Less  Other  Expenses: 

Cash  Discounts  Allowed 
Interest — Notes    Payable 


Net  Additions  (1.4%  of  sales) 


2,792,12 
141.10 

2.933.22 


2^7.16 
720.00 


977.16 


Net  Profits  from  all  sources  transferred  to  Partners' 
Capital  Accounts  as  shown  on  Exhibit  A  (8%  of  sales) 


1,056.06 


$11,09423 


COST  OF  SALES 


Dry  Goods 
Boots  and  Shoes 
Clothing 


Inventory 
Jan.  1, 1913 


$  12.597.80 
13.750.10 
12,410.90 


$  38,758.80 


Purchases 


33,029.34 
33,660.80 
33,116.20 


99.866.34 


Totals 


45,627.14 
47,410.90 
45,527.10 


138,565.14 


Inventory 
Dec.  31,  1913 


15,210.00 
14,625.10 
15,723.40 


45,558.50 


Cost  of 
Sales 


30,417.14 
32,785.80 
29,803.70 


93,006.64 


225 


»#■* 

tv 


'I 


,; 


1:1 


THE  HENDERSON  &  McCREERY  COMPANY 

EXHIBIT  A 

345.  BALANCE  SHEET 

^ As  of  December  31,  191 3. 

ASSETS 

Current  Assets 

Cash 

Imprest  Fund  $       50.00 

Cashier's  Change  200.00 

In  Banks  12,254.34        12,504.34 


Notes  Receivable 

Accounts  Receivable — Custom- 
ers 

Less  Reserve  for  Doubtful 
Accounts 

27,612.74 
2,023.75 

5,862.37 
25,588.99 

Inventories     of     Merchandise 
(See  Schedule  i) 

Deferred  Charges  to  Operation 

Unexpired  Insurance 
Interest  on   Items   Payable 
Advertising 

732.90 

75.00 

3,452.45 

62,187.80 

106,143.50 


4,260.35 


Fixed  Assets 

Store  Furniture  and  Fixtures       10,000.00 
Less  Reserve  for  Depreciation  2,000.00 


8,000.00 


Stable  Equipment 

3,673.90 

Less  Reserve  for  Deprecia 

tion     73478 

2,939.12 

10,939.12 

Total  Assets 

$121,342.97 

LIABILITIES 

Current  Liabilities 

Notes  Payable 

$  5,000.00 

Accounts  Payable — Purchase 

Creditors 

4437.56 

Accrued  Items  Payable 

Pay  Rolls 

151.00 

Taxes 

136.60 

287.60 

Total    Liabilities 

9725-16 

Net  Worth 

Represented  by: 

Capital  Stock  Authorized 

100,000.00 

Less  Unissued  Stock 

30,000.00 

70,000.00 

Surplus — Balance  December  31, 

1 91 2  17,820.84 

Add  Net  Profits  for  Year  Ended 

Dec.  31,  1913  23,796.97 


41,617.81       111,617.81 


Total  Liabilities  and  Net  Worth 

226 


$121,342.97 


H«      >,»    ^7 


SE3= 


=S*E 


THE  HENDERSON  &  McCREERY  COMPANY 

SCHEDULE  I— EXHIBIT  A    '^ 

346.  MERCHANDISE  INVENTORIES 

As  of  December  31,  1913 


-•— »- 


Department 

A — Men's  Furnishings 
B — Gloves  and  Handkerchiefs 
C — Hosiery  and  Underwear 
D — 'Linen  and   White  Goods 
E — ^Jewelry  and  Art 
F — Millinery 
G — Cloaks 
H — Shoes 
I — Carpets 
J — Hardware 
K— Toys 
-Music 


Total  as  shown  on  Exhibit  A 


Amount 

$  3,566.74 
3,264.25 

2,856.81 
1,921.71 

1,^5.91 
5,878.15 
13,097.13 
14,356.15 
8,434-43 
4.544.65 

^,49359 
8(38.28 

$62,187.80 


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34«. 


Accounts 


[Selling  Expenses 

Salaries — Sales  People 

Premiums  and  Commissions 

Advertising — Periodicals 

Advertising — Miscellaneous 

Rent 

Heat 

Ligfht 


Insurance 
Taxes 


Depreciation — Furniture  and   Fixtures 
Elevator  Wages* and  Expense 
Delivery  Service 


Departmental  Supplies 

Total  Selling  Expenses 

General  Administrative  Expenses 

Salaries — Executive  Officers 

Salaries — Office  Employees 

Salaries — Miscellaneous 

Stationery  and  Office  Supplies 

Postage 

Telephone  and  Telegraph 

ClKirities  and  Donations 

Legal  Services 

Doubtful  Accounts  (Reserve  Charge) 

Cash  Shorts 

Total  General  Admmstrative  Ex- 
penses  distributed    according 
to  Sales 
Totals  as  shown  on  Exhibit  B 


THE  HENDERSON  St  McCREERY  COMPANY 

SCHEDULE  I— EXHIBIT  B 

EXPENSES 

For  the  year  ended  December  31,  1913. 


Basis  of  Distribution 


From   payrolls 

According  to  space  used 
From   advertising   reports 
According  to  floor  space 


Items 


•i 


According  to  stocks 


According  to  valuation  of  fixtures 
According  to  sales 


M 


«< 


From  requisitions 


12.000.00 

1.237.94 

642.71 


2.198.63 
820.04 


1,000.00 
5,043.92 


6,000.00 
2.694.70 
600.00 
360.42 
120.00 
248.20 
498.00 
210.00 
465.40 
60.32 


Total 


$15,576.76 

431-91 

13,160.90 

1. 2 1 0.00 


13.880.65 


3,018.67 
1,000.00 


6,043.92 
650.39 


54.973-20 


11,257.04 


$66,230.24 


A 
Men's 
Furn. 


1,200.00 

30.00 

636.92 

60.75 


Departments 


B 

Gloves 

&  Hdkfs. 


1.087.25 


171.79 
57.27 


350.55 
32.65 


3,627,1s 


652.91 


4,280.09 


841.20 
T0.20 
71.28 

32.43 


578.23 


156.73 
52.24 


320.33 
17.43 


C 
.  Hosiery 
and   Und. 


2.080.07 


596.62 


2,676.69 
229 


743.80 

20.41 

1,035.82 

105.51 


277.61 


138.64 
46.22 


350.54 
56.71 


D 
Linens  & 
W.  Goods 


E 
Jewelry 
and  Art 


2,775.26 


652.9 


2 


623.42 

419.98 
59.90 


694.04 


93.44 
31.14 


284.06 
32.19 


2,238.17 


500.57 


3.428.18  I    2,738.74 


000.00 

8.90 

492.40 

49.12 


F 
Millinery 


925.44 


93.44 
31.14 


24176 
26.40 


2,468.60. 


478.79 


1,042.20 
101.40 

2,162.28 
122.45 


G 

•Cloaks 


694.04 


286.32 
95.45 


580.22 
65.81 


5.150.17 


1 ,080.67 


2,947.39  I     6.230.84 


2,400.00 

.  210.30 

2,843.48 

162.99 


2.3 » 3.50 


637.95 

209.99 


1.039-55 
87.61 


9.905.37 


1.936.22 


11.841.59 


H 

Shoes 


2,010.00 

50.70 

77776 

200.73 


2,082.10 


698.27 
230.04 


1,081.86 
107.91 


7-239.37 


2,015.01 


9.254-38 


I 
Carpets 


3.463.20 

3.438.92 
218.16 


Hardware 


2,313.50 


410.54 
136.00 


^039.55 
117.28 


IM37.I5* 


1.936.22 


13.073.37 


1,650.21 

943.05 
155.61 


2,082.10 


220.02 
73-34 


562.09 
83.64 


5,770.06 


1 ,046.90 


6,816.96 


K 
Toys 


630.50 

288.61 
31.82 


41642 


72.34 
24.11 


108.79 
17.10 


1,589.69 


202.62 


1,792.31 


L 
Music 


372.23 

50.40 
10.53 


416.42 


39.19 
13.06 


8462 
5.66 

992.11 


157.59 


1,149.70 


349* 


ENTRIES  FOR  RESERVES 


FOR  BAD  ACCOUNTS  AND  DEPRECIATION  ON  PLANT 

ACCOUNTS. 

When  these  entries  are  not  made  monthly  for  the  amounts  appli- 
cable to  each  month,  they  should  be  made  at  the  close  of  the  year 
covering  the  entire  period,  before  taking  the  final  trial  balance  from 
which  the  Balance  Sheet  and  Profit  and  Loss  Statement  are  prepared. 


Doubtful  Accounts  (Reserve  Charge)  $5,148.97 

To  Reserve  for  Doubtful  Accounts 

(To  provide  for  losses  on  bad  accounts 
for  the  year  ended  December  31,  1913, 
estimated  on  the  basis  of  1%  of  net  sales. 
(See  39  and  218.) 

Depreciation  on  Plant  (Reserve  Charge)  $7,990.88 

To:  Reserve  for  Depreciation — Buildings 
(3%  on  $55,000.00.) 

Reserve  for  Depreciation — Machinery  and 
Machine  Tools 
(7^%  on  $40,627.50.) 
Reserve  for  Depreciation — Factory  Fix- 
tures 

(10%  on  $10,438.20.) 
Reserve  for  Depreciation — Patterns 
(25%  on  $9,000.00.) 

Depreciation   on   Office   Furniture   and   Fixtures 

(Reserve  Charge)  $    150.00 

To  Reserve  for  Depreciation — Office  Furni- 
ture and  Fixtures 
(10%  on  $1,500.00.) 


$5,148.97 


$1,650.00 

$3,047.06 

$1,043.82 
$2,250.00 


Extinguishment  of  Patents 
To  Patents 

(10%  of  the  valuation  of  Patents.) 


$2,500.00 


$    150.00 


$2,500.00 


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THE  BLANK  MANUFACTURING  COMPANY 

351.    INSTRUCTIONS    FOR    PREPARING    BALANCE    SHEET 

AND  PROFIT  AND  LOSS  STATEMENT. 

I— In  columns  A  and  B  are  entered  the  items  constituting  the  trial 
balance  of  the  general  ledger  before  closing,  charges  for  Reserve 
for  Bad  Accounts  and  Depreciation  on  Plant  Accounts  havmg 
been  previously  made.  The  inventories,  deferred  charges  and 
accrued  items  at  the  close  of  the  period  are  as  follows: 


$65,270.00 

25,410.60 

47,432.81 

6,219.10 

1,597.10 
460.00 
100.00 
350.00 

42500 

500.00 


Inventories 

Manufacturing   Material 

Finished  Product 

Work  in  Process 

Perishable  Tools 
Deferred  Charges  to  Operation 

Factory  Supplies 

Unexpired  Insurance — Fire 

Unexpired  Insurance — Liability 

Stationery  and  Printing 
Accrued  Items  Receivable 

Accrued  Interest — Notes  Receivable 
Accrued  Items  Payable 

Accrued  Interest — Notes  Payable 
2 — Enter  in  column  C,  all  Inventories  and  Deferred  Charges  to  Op- 
eration.   See  items  marked  (2). 
3 — Enter  in  column  D,  all  Accrued  Items  Payable.    See  items  marked 

(3). 
4 — Enter  in  columns  C  and  D,  the  contra  entries  to  the  Operatmg 

Accounts  affected  by  the  Inventories,  Deferred  Charges  and  Ac- 
crued items  mentioned  in  Nos.  2  and  3.     See  items  marked  (4). 

5 — Foot  columns  C  and  D  which  should  equal  each  other. 

6 — Carry  all  Assets  and  Liabilities  from  columns  A,  B,  C  and  D  into 
columns  E  and  F  respectively.     See  items  marked  (6). 

7 — 'Carry  all  Operating  Accounts  from  columns  A,  B,  C  and  D  into 
columns  G  and  H.    See  items  marked  (7). 

8 — Close  the  sum  of  the  individual  Accounts  No.  80  to  No.  93  inclu- 
sive into  Account  No.  62. 

9 — Close  the  sum  of  the  individual  Accounts  No.  loi  to  No.  no  in- 
clusive into  Account  No.  65. 

10 — Close  the  sum  of  the  individual  Accounts  No.  120  to  No.  126  in- 
clusive into  Account  No.  66. 

II — Foot  Accounts  No.  60  to  No.  62  inclusive  and  close  to  Account 
No.  63. 

12 — Close  Account  No.  63  into  Account  No.  64. 

13 — Close  Account  No.  64  into  Account  No.  50. 

14 — Foot  Accounts  No.  50  to  No.  69  inclusive,  omitting  Accounts  No. 
60  to  No.  64  inclusive.  The  difference  between  the  debit  and 
credit  footings  thus  obtained  should  represent  the  net  profit  or 
loss,  which  should  be  closed  to  Account  No.  38. 

15 — Foot  columns  E  and  F  which  should  equal  each  other. 

16 — After  thus  proving  the  work,  the  Balance  Sheet  and  Profit  and 
Loss  Exhibits  may  be  prepared. 

235 


Ml 


I 


Ill 


:).,. 


35a. 


ENTRIES  FOR  CLOSING  BOOKS 


I — Dr.    Account    No.    62    Manufacturing    Ex- 
penses, Overhead  $  52,638.61 
Cr.  the  Individual  Accounts  No.  80  to 
No.  93  inclusive 

2 Dr.  Account  No.  65  Administrative  Expenses    28,220.88 

Cr.  the  individual  Accounts  No.  loi  to 
No.  no  inclusive 
3— Dr.  Account  No.  66  Selling  Expenses  58,883.94 

Cr.  the  individual  Accounts  No.  120  to 
No.  126  inclusive 
4 — Dr.  Account  No.  63  Cost  of  Product  Manu- 
factured 344030.31 
Cr.  Account  No.  60  Manufacturing  Ma- 
terial— Purchases 
Account  No.  61  Direct  Labor 
Account  No.  62  Manufacturing  Ex- 
pense— Overhead 
5_Dr.  Account  No.  64  Cost  of  Sales  351,724.80 
Cr.  Account  No.  63    Cost    of    Product 
Manufactured 
6 — Dr.  Account  No.  50  Sales  348,655-80 

Cr.  Account  No.  64  Cost  of  Sales 
7_Dr.  Account  No.  50  Sales  166,240.90 

Cr.  Account  No.  39  Profit  and  Loss 
8— Dr.  Account  No.  51  Cash  Discount  Earned      3,724-30 

Cr.  Account  No.  39  Profit  and  Loss 
9 — Dr.  Account  No.  52  Interest  Earned  425.00 

Cr.  Account  No.  39  Profit  and  Loss 
10 — Dr.  Account  No.  39  Profit  and  Loss  28,220.88 

Cr.  Account  No.  65  Administrative  Ex- 
penses 
II— Dr.  Account  No.  39  Profit  and  Loss  58,883.94 

Cr.  Account  No.  66  Selling  Expenses 
12 — Dr.  Account  No.  39  Profit  and  Loss  5*632.10 

Cr.  Account  No.  67  Cash  Discount  Al- 
lowed 
13— Dr.  Account  No.  39  Profit  and  Loss  3,000.00 

Cr.   Account    No.    68    Interest— Notes 
Payable 
14— Dr.  Account  No.  39  Profit  and  Loss  2,500.00 

Cr.  Account  No.  69  Extinguishment  of 
Patents 
15 — Dr.  Account  No.  39  Profit  and  Loss  72,153.28 

Cr.  Account  No.  38  Surplus  ,   ,  ^^ 

16 After  making  the  above  entries  the  Profit  and  Loss  Account  will 

show  as  follows: 


195,050.40 
96,841.30 

52,638.61 


351,724.80 

348,65580 

166,240.90 

3,724.30 

425.00 

28,220.88 
58,883.94 

5,632.10 

3,000.00 

2,500.00 
72,153.28 


1 


PROFIT  AND  LOSS  ACCOUNT 


Dr. 
Administrative  Expense  $28,220.88 


Cr. 


Selling  Expense 

58,883.94 

Cash  Discount  Allowed 

5,632.10 

Interest — Notes  Payable 

3,000.00 

Extinguishment  of  Pat- 

ents 

2,500.00 

Surplus 

72,153.28 

$1 

[70,390.20 

Gross  Profit — Sales  $166^0.90 
Cash  Discounts  Earned  3,724.30 
Interest  Earned  425xx> 


$170,390.20 


17 — Rule  Accounts  No.  38  to  No.  126  inclusive,  bringing  down 
balances.  The  balance  of  those  accounts  affected  by  inventories, 
deferred  charges  to  operation  or  accrued  items,  should  be  brought 
down  as  "Inventory  Balance,"  "Deferred  Charges  Balance,"  "Ac- 
crued Balance,"  respectively,  as  the  case  may  be. 

18 — Prove  the  general  ledger  by  taking  a  trial  balance  before  posting 
transactions  of  the  new  period. 

Note. — Closing  entries  Nos.  i,  2  and  3  may  be  omitted,  and  in  entry 
No.  4  instead  of  crediting  account  No.  62  credit  the  individual 
manufacturing  expense  accounts  No.  80  to  No.  93  inclusive,  and 
in  a  similar  manner  in  entries  No.  10  and  No.  11  instead  of  credit- 
ing accounts  No.  65  and  No.  66  credit  the  individual  accounts  No. 
loi  to  No.  no  inclusive  and  No.  120  to  No.  126  inclusive,  respec- 
tively. 


w 


236 


237 


'itr: 


11 

Hi 


% 


353* 


THE  BLANK  MANUFACTURING  COMPANY 

EXHIBIT  A 

BALANCE  SHEET 

As  of  December  31,  I9i3- 


ASSETS 

Current  Assets 

Cash 

Imprest  Fund 
In  Banks 

Notes  Receivable 

Accrued  Interest  on  Notes  Re- 
ceivable 

Accounts  Receivable: 
Customers 

Less    Reserve   for    Doubtful 
Accounts 

Sundry  Debtors 

Inventories: 

Manufacturing  Material 
Finished  Product 
Work  in  Process 


Deferred  Charges  to  Operation 
Insurance — Fire 
Insurance-^Liability 
Factory  Supplies 
Stationery  and  Office  Supplies 

Fixed  Assets 
Grounds 

Buildings  55,ooo.oo 

Less  Reserve  for  Depreciation    5,000.00 

Machinery  and  Machine  Tools         40,627.50 
Less  Reserve  for  Depreciation    9,286.23 

Factory  Fixtures  10,438.20 

Less  Reserve  for  Depreciation    1,863.20 


$       100.00 

15,525.00 

15,625.00 
5,500.00 

42500 

46,979-60 

6,410.40 

40,569-20 
1,974.20 

42,543-40 

65,270.00 
25,410.60 

47,432.81 

138,11341 

460.00 

100.00 

1,597-10 
350.00 

Perishable  Tools 

Patterns                                        .  9,ooo.oo 

Less  Reserve  for  Depreciation  2,500.00 

Office  Furniture  and  Fixtures  1,500.00 

Less  Reserve  for  Depreciation  450.00 


Intangible  Assets 

Patents 


Total  Assets 


202,206.81 


2,507.10 


6,000.00 
50,000.00 
31,341-27 


8,575.00 
6,219.10 


6,500.00 


1,050.00 


109,685.37 

22,500.00 
$336,899.28 


LIABILITIES 


Current  Liabilities 
Notes  Payable 
Accounts  Payable 

Purchase  Creditors 

Accounts  Receivable — Credit 

Balances 
Sundry  Creditors 


Accrued  Wages 
Accrued  Interest — Items 
Payable 


$  25,000.00 


15,520.40 


1,042.00 
438.90 


1,250.00 
500.00 


Fixed  Liabilities 

Mortgages  Payable 

Total  Liabilities 
Net  Worth  (Excess  of  Assets) 
Represented  by: 
Capital  Stock— Authorized 


200,000.00 


Less  Capital  Stock— Unissued  50,000.00 


Surplus 

Balance  December  31,  1912, 
as  adjusted  (see  Sched- 
ule i)  60,994.70 
Add  Net  Profit  for  year 
ended  December  31,  1913 
(See  Exhibit  B)  72,15328 

■ 

133,147.98 
Deduct  Dividends  paid  dur- 
ing year  15,000.00 


Total  Liabilities  and  Net  Worth 


17,001.30 


1,750.00 


43,751.30 
25,000.00 

68,751.30 


150,000.00 


118,147.98 


268,147.98 


$336,899.28 


239 


*!«^^ 


354* 


THE  BLANK  MANUFACTURING  COMPANY 

EXHIBIT  A 

BALANCE  SHEET 

As  of  December  31,  1913. 


ASSETS 

Fixed  Assets 
Grounds 

Buildings                                    .  55,000.00 
Less  Reserve  for  Deprecia- 
tion 5,000.00 

Machinery  and  Machine  Tools  40,627.50 
Less  Reserve  for  Depreciation   9,286.23 

Factory  Fixtures  10,438.20 

Less  Reserve  for  Depreciation  1,863.20 

Perishable  Tools 

Patterns                                      .  9,000.00 

Less  Reserve  for  Depreciation  2,500.00 

Office  Furniture  and  Fixtures  1,500.00 

Less  Reserve  for  Depreciation  450.00 


$  6,000.00 

50,000.00 
31,341-27 


8,575-00 
6,219.10 


6,500.00 


1,050.00 


Intangible  Assets 
Patents 

Deferred  Charges  to  Operation 

Insurance — Fire 
Insurance — Liability 
Factory  Supplies 
Stationery  and  Office  Supplies 

460.00 

100.00 

1,597.10 

350.00 

Current  Assets 

Inventories 

Manufacturing  Material 
Finished   Product 
Work  in  Process 

65,270.00 
25,410.60 
47,432.81 

Accounts  Receivable 

Customers  46,979.60 

Less    Reserve   for    Doubtful 

Accounts  6,410.40 


138,113.41 


Sundry   Debtors 


40,569.20 
1,974-20 


Notes  Receivable 

Accrued  Interest  on  Notes  Receivable 

Cash 

Imprest    Fund  100.00 

In   Banks  15,525.00 


42,543.40 

5,500.00 

42500 


15,625.00 


109,685.37 
22,500.00 


2,507.10 


202,206.81 
$336,899-28 


LIABILITIES 


Capital   Stock 
Authorized 

Less  Unissued 


$200,000.00 
50,000.00 


Fixed  Liabilities 

Mortgages  Payable 
Current  Liabilities 

Notes  Payable 
Accounts  Payable 

Purchase    Creditors 
Customers  Ledger — 
Credit    Balances 
Sundry    Creditors 


15,520.40 

1,042.00 
438.90 


Accrued  Wages 

Accrued  Interest  on  Items  Payable 


Surplus 

Balance   December   31,    1912,    as    adjusted 

(see  Schedule   i) 
Add  Net  Profits  for  year  ended  December 
3i»  1913  (see  Exhibit  B) 


Deduct  Dividends  paid  during  year 


25,000.00 


17,001.30 

1,250.00 

500.00 


60,994.70 
72,153.28 

133,147.98 
15,000.00 


150,000.00 
25,000.00 


43,751.30 


118,147.98 


$336,899.28 


240 


THE  BLANK  MANUFACTURING  COMPANY 

SCHEDULE  I-EXHIBIT  A 


Balance  December  31,  1912 

as  of  December  31,  ?if-f,%^^^o  ?^ 
footed  $3,298.70  should  be  $5,29870 

Accrued  Interest  on  Notes  Receivable 
at  December  31*  1912 

Unexpired     Insurance-December     31, 

1912 


$59,160.70 


2,000.00 
400.00 
614.00 


M 


H 


I 


3,014.00 


^^"^Adjustments  belonging  to  prior  periods: 
Invoices    for   purchases    of    ma- 
terial  received    durmg    1912, 

entered   in   1913     ^  ^^^'^ 

Taxes  accrued  December  31* 

1912  ^ 


1,180.00 


Net  Adjustments 

Balance  December  31.  19",  as  adjusted  and  as  shown  on 
Exhibit  A 


1,83400 


$60,99470 


241 


if 


'A. 


i 


pi 


!fJ;-: 


I' 


356. 


THE  BLANK  MANUFACTURING  COMPANY 

EXHIBIT  B 
PROFIT  AND  LOSS  STATEMENT 


For  the  year  ended  December  31,  1913- 


Sales 

Less  Sales  Returned 


$520,938.90 
6,042.20 


Net  Sales 
Cost  of  Sales  . 

Inventory — Manufacturing     Material,    De- 
cember 31,  1912 
Add:  Purchases 


Deduct:    Inventory  December  31,  1913 

Manufacturing  Material  Used 
Add:    Direct  Labor 

Total   Direct   Charges   to   Manufacturing 
Add:  Manufacturing  Expenses  (see  Sched- 
ule I)   (54.4%  of  Direct  Labor) 

Total  Charges  to  Manufacturing 
Add:    Inventory  of  Work  in  Process  De- 
cember 31,  1912 


Deduct:    Inventory    of   Work   in    Process 
December  31,  1913 

Cost  of  Product  Manufactured 
Add:     Inventory  of  Finished  Product  De- 
cember 31,  1912 

Deduct:    Inventory    of    Finished    Product 
December  31,  1913 


514,896.70 


61,460.00 
198,860.40 

260,320.40 
65,270.00 

195,050.40 
96,841.30 

291,891.70 
52,638.61 

344.530.31 
54,627.30 

399,157.61 
47,432.81 

351,724.80 
22,341.60 

374,066.40 
25,410.60 


Cost  of  Sales  (67.7%  of  Sales) 
Gross  Profits  on  Sales   (32.3%   of  Sales— 47.7%  of  cost) 
Carried  forward 


348,655.80 


166,240.90 


i 


Gross  Profits  on  Sales  brought  forward 

Deduct:  ^        ^  ,     .  1      x 

Administrative  Expenses  (see  Schedule  i) 

(5.48%  of  sales— 8.1%  of  Cost) 
Selling  Expenses  (see  Schedule   i)   (11.4% 
of  Sales^i6.9%  of  Cost) 

Total  Administrative  and  Selling  Ex- 
penses (16.9%  of  Sales— 25%  of 
Cost) 

Net  Profits  from  Operations  (i5-5%  of  Sales— 

22.7%  of  Cost) 
Deduct: 

Other  Expenses 

Cash   Discounts  Allowed  5,632.10 

Interest    on   Notes    Payable       3,000.00 
Extinguishment  of  Patents         2,500.00 


166,240.90 


28,220.88 
58,883.94 


87,104.82 


79,136.08 


Less  Other  Revenues 

Cash    Discounts    Earned 
Interest  Earned 


11,132.10 


3,724-30 
425.00 


4,149.30 


Total  Net  Deductions  (1.36%  of  sales— 2%  of  Cost)        6,982.80 

Net  Profit  from  all  sources  transferred  to  Surplus 
(14.1%  of  Sales— 48.1%  of  Capital  Stock.) 


$  72,153.28 


242 


243 


'A 


357. 


THE  BLANK  MANUFACTURING  COMPANY 
SCHEDULE  I-EXHIBIT  B 

EXPENSES 

As   of   December  31,   I9i3- 


i 


Manufacturing  ,  _ 

Salaries  of  Superintendents  and  Foremen 

Miscellaneous  Indirect  Labor 

Heat,  Light  and  Power 

Repairs  to  Buildings  ,   ,,     ,  .       t,     ,„ 

Repairs  to  Machinery  and  Machme  Tools 

Repairs  to  Factory  Fixtures 

Repairs  to  Perishable  Tools 

Repairs  to  Patterns 

Taxes  on  Plant  and  Stock 

Insurance — Fire 

Insurance — Liability 

Factory   Supplies 

Experimental   Work 

Depreciation   on   Plant    (Reserve    Charge; 

Total  as  shown  on  Exhibit  B 

Administrative 

Salaries— Executive  Officers 
Salaries— Office   Employees 
Stationery  and  Office  Supplies 
Postage 

Telephone  and  Telegraph 
Depreciation  on  Office  Furniture  and  fix- 
tures (Reserve  Charge) 
Charities  and  Donations 
Taxes— State  and  Federal 
Incidentals 
Doubtful  Accounts  (Reserve  Charge) 

Total  as  shown  on  Exhibit  B 


$17,531.10 
6,841.30 
4,710.40 
1,564.60 

1,941.31 
131-40 

2,419.94 

1,931.06 

1,843.10 

871.60 

440.00 

2,524.92 
1,897.00 
7,990.88 


$10,000.00 
6,200.00 
1,291.10 
1,910.40 
1,480.00 

150.00 

325.00 

1,090.10 

625.31 
5,148.97 


$52,638.61 


Selling  _        ^.       ^  , 

Salaries— Traveling  Salesmen 

Traveling  Expenses 

Advertising  . 

Stationery  and  Office  Supplies  (Proportion) 

Postage   (Proportion) 

Shipping  Labor  and  Expense 

Miscellaneous  Selling  Expense 

Total  as  shown  on  Exhibit  B 


$21,320.00 

11,875.00 

19,950.00 

1,381.40 

675.10 

2,641.30 

1,041.14 


$28,220.88 


$58,883.94 


244 


i 


Machinery  Sales 
Model  No.  I 
No.  2 
No. 
No. 
No. 
No. 
No. 
No.  8 
No.  9 
No.  10 


(I 
<i 
(t 
<i 
<i 
i« 

(4 
(I 


3 
4 

5 
6 

7 


Totals 


Sales 


$102,979.34 
42,908.06 
85,816.12 
77,234.50 

51,489.67 
64,362.09 

38,617-25 
15,446.90 

25,744.84 
10,297.93 


$514,896.70 


Deduct: 

Other  Expenses 

Cash  Discounts  Allowed 
Interest — Notes  Payable 
Extinguishment  of  Patents 


Less  Other  Revenues 

Cash  Discounts  Earned 
Interest 


35& 


Factory 
Costs 


72,549.48 
30,287.24 
68,036.12 
57,024.10 
29,009.07. 
34,201.99 
25,995.23 
8,005.60 
17,092.74 

6,45423 


348,655-80 


THE  BLANK  MANUFACTURING  COMPANY 

EXHIBIT  B 

PROFIT  AND  LOSS  STATEMENT 

For  the  year  ended  December  31,  1913. 


Gross 
Profits 


30429.86 

12,620.82 

17,780.00 

20,210.40 

22,480.60 

30,160.10 

12,622.02 

7»44i.30 

8,652.10 

3,843.70 


%  of 
Sales 


166,240.90 


29.6 

29-4 
20.7 

26.1 
43-6 
46.8 

32.7 
48.2 

33-6 

37-3 


Administrative 
Expenses 


32-3 


5,648-65 
2,351.47 
4,701-72 

4,232ul8 

2,821.65 

3,527.04 
2,116.21 

846.50 

1,410.83 

56433 


28,220.88 


%  of 
Sales 


5.48 


Selling 
Expenses 


11,779.72 

4,891.74 
9,803.02 

8,914.79 
5,875.20 

7»347.27 
4,402.34 

1,760.96 

2,93493 

1,173-97 


58.883.94 


%  of 
Sales 


3,724.30 
425.00 


Total  Net  Deductions  (1.36%  of  sales— 2%  of  costs) 
Net  Profit  from  all  sources  transferred  to  Surplus  (See  Exhibit  A)  (14.1%  of  sales— 48.1%  of  Capital  Stock) 


Total 
Expenses 


17,428.37 
7,243.21 

14.50474 
13,147.27 

8,696.85 

10.874-31 

6,518.55 

2,60746 

4.34576 
1,738.30 


1 1. 4   H    87,104.82 


%  of 
Sales 


5,632.10 

3,000.00 

» 2,500.00 

11,132.10 


4,149.30 


16.9 


Net 
Profits 


i3,pOM9 
5.377.61 
3.275.26 
7/^313 
13,783.75 
19,285.79 
6,103.47 
4,833.84 
4,306.34 
2,105.40 


79,136.08 


%  of 
Sales 


6^983.80 


12.6 
12.5 
3.8- 
9.1 

26.7 
29.9 
15.8 

31.3 
16.6 
204 


15.5 


M 


$73,153-38    I  14.1 


24s 


THE  BLANK  MANUFACTURING  COMPANY 
SCHEDULE  I— EXHIBIT  B 


359 

.    STATEMENT  OF  DIRECT  AND  INDIRECT  CHARGES  TO  MANUFACTURING 

For  the  year  ended  December  31,  1913. 

Accounts 

Basis  of  Distribution 

Totals 

Departments                                                     || 

A 

B 

c 

D 

E 

F 

General 

Direct 

Material  Used 

Stores  Orders- 

$195,050.40 

21,607.20 

18,210.40 

27,632.10 

14,729.82 

30,438.60 

82,432.28 

— 

Direct    Labor 
Indirect 

Time  Tickets 

Totals 

96,841.30 

9.684.13 

4,842.06 

14,526.20 

9,684.13 

14,526.20 

43.578.58 

$291,891.70 

31,291.33 

23,052.46 

42,158.30 

24,413.95 

44,964.80 

126,010.86 

- 

1 

1 

Salaries  of  Superintendents  &  Foremen 

Time  Tickets 

$  17,531.10 

1,54170 

1,041.60 

2,531.10 

1,974.20 

1,804.30 

3,638.20 

5,000.00 

Miscellaneous  Indirect  Labor 

it           it 

6,841.30 

1,010.40 

802.71 

743.10 

982.30 

1,041.10 

1,274.49 

987.20 

Heat,  Light  and  Power 

Meters  and  Schedule 

4,710.40 

501.60 

432.10 

621.40 

381.10 

987.10 

889.20 

897.90 

Repairs  to  Buildings 

Stores  Orders  and  Time  Tickets 

1,564.60 

210.40 

198.10 

2r4.6o 

98.20 

147.91 

257.29 

438.10 

Repairs  to  Machinery  &  Machine  Tools 

<<                           <4                        ti                      U                          «« 

1,941.31 

347.20 

398.00 

147.10 

150.92 

429.32 

468.77 

— 

Repairs  to  Factory  Fixtures 

«(                          *t                        «<                      t<                           It 

13140 

17.20 

30.42 

— 

31.00 

— 

52.78 

— 

Repairs  to  Perishable  Tools 

M                        M                      M                    t<                         It 

2,419.94 

204.30 

78.90 

321.10 

480.60 

527.60 

669.34 

138.10 

Repairs  to  Patterns 

H                        «l                      ««                    <i                         It 

1,931.06 

— 

160.56 

943.20 

— 

827.30 

— 

Taxes  on  Plant  and  Stock 

Special  schedule  of  plant  valuations  and  stocks 

1,843.10 

184.31 

92.15 

184.31 

92.1 5 

368.62 

552.93 

368.63 

Insurance— Fire 

•«                          «4                      «                «                           «                           »<                <« 

871.60 

87.16 

43.58 

87.16 

•43.58 

174.32 

261.48 

174.32 

Insurance — Liability 

Departmental  Pay  Roll 

440.00 

44.00 

22.00 

66.00 

44.00 

66.00 

198.00 

Factory  Supplies 

Stores  Orders 

2,524.92 

427.00 

304.00 

265.10 

195.00 

549.10 

745.62 

39-10 

Experimental  Work 

Time  Tickets 

1,897.00 

201.00 

— 

327.50 

— ' 

987.00 

381.50 

Depreciation  on  Plant 

Schedule  of  valuations 

Total  General  distributed  to  departments 
according  to  Direct  Labor 

Totals 
Percentage  of  Direct  Labor 

7,990.88 

799.01 

427.00 

1,298.14 

891.40 

1,327.50 

2,754.73 

493.10 

853.64 

426.82 

1,280.47 

853.65 

1,28047 

3,84140 

8,53645 

$  52,638.61 

6,428.92 

4.457-94 

9,030.28 

6,218.10 

10,517.64 

15,985.73 

1 

54.4 

66.4 

92.1 

62.1 

64.1 

724 

36.6 

246 


WK^K^rvsm 


'1 


i 


PART  7 


II 


l| 


ACCOUNTING  FORMS 


li 


360. 


ACCOUNTING  FORMS. 


The  following  pages  illustrate  and  describe  some  of 
the  principal  forms  used  for  recording  the  transactions 
entering  into  the  general  books.  Those  given  are  the 
Cash  Received,  Check  Register,  Petty  Cash  Disburse- 
ments, Journal,  Accounts  Payable  Voucher,  Purchase 
Record,  Distribution  Summary,  Combined  Cash  Journal 
and  Sales  Summary. 

In  a  business  of  such  size  that  the  services  of  only 
one  bookkeeper  are  required,  these  forms  may  all  be 
carried  in  one  binder  or  holder,  each  form  to  be  separated 
by  an  index  tab  marked  accordingly.  Only  a  sufficient 
number  of  sheets  need  be  carried  in  the  current  binder  to 
provide  for  the  transactions  of  the  month.  At  the  close 
of  the  month  these  sheets  should  be  transferred  to  a  per- 
manent key  locking  binder,  thus  making  the  records 
secure.  This  method  of  carrying  the  current  records  in 
one  compact  form  facilitates  the  recording  of  the  daily 
transactions  and  makes  the  handling  of  several  large 
books  unnecessary.  When  two  or  more  bookkeepers  or 
cashiers  are  required,  the  sheets  may  be  so  divided  as  to 
work  to  the  best  advantage  in  each  case. 


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361.  CASH  RECEIVED— FORM  No.  i. 

This  form  is  designed  to  record  only  cash  received. 
In  many  Hnes  of  business  the  items  of  daily  cash  received 
are  very  numerous,  and  the  ordinary  cash  book,  which 
provides  for  both  receipts  and  disbursements  in  the  one 
book,  v^ill  often  have  one  or  more  pages  filled  with 
receipts  while  there  are  no  disbursements  on  the  opposite 
pages,  or  vice  versa.  This  form  has  an  advantage  over 
such  a  record,  in  that  all  cash  receipts  are  recorded  by 
themselves,  resulting  in  a  saving  of  fully  50%   in  space 

used. 

362.  Column  —  Bank  Deposits.  In  this  column 
should  be  entered  the  total  amount  of  each  deposit.  No 
postings  are  to  be  made  from  it,  except  at  the  close  of  the 
month,  when  the  total  should  be  posted  to  the  credit  of  the 
account,  Cash  Received,  but  the  amount  of  each  deposit 
should  be  transferred  daily  to  the  deposit  column  of  the 
check  register. 

363.  Column — Net  Cash  Received.  In  this  column 
should  be  entered  the  net  amount  of  each  cash  received 
item.  All  cash  received  should  be  deposited  in  the  bank 
daily,  in  which  event  this  column,  after  the  day's  deposits 
have  been  made,  should  equal  the  column  headed  "Bank 
Deposits."  No  posting  except  the  total  at  the  end  of  the 
month  is  to  be  made  from  this  column. 

251 


364-368  ACCOUNTING    FORMS 

364.  Column — ^Accounts  Receivable.  In  this  col- 
umn should  be  entered  the  total  amount  of  each  remit- 
tance credited  to  customers,  therefore  each  amount  in  this 
column  must  include  not  only  the  net  cash  received  but 
all  deductions  allowed.  The  items  in  this  column  should 
be  posted  throughout  the  month  to  the  individual  ac- 
counts in  the  customers'  ledger,  and  at  the  close  of  the 
month  the  total  of  the  column  should  be  posted  to  the 
customers'  controlling  account  in  the  general  ledger. 
(See  24). 

365.  Column — General  Ledger  Credit.  In  this  col- 
umn should  be  entered  all  amounts  which  are  to  be  posted 
to  the  general  ledger,  the  items  to  be  posted  throughout 
the  month,  or  summarized  as  explained  in  397,  and  their 
totals  only  posted  at  the  close  of  the  month. 

366.  Column — Cash  Sales.  In  this  column  should 
be  entered  the  cash  received  from  cash  sales.  No  post- 
ings are  to  be  made  from  this  column  until  the  end  of  the 
month,  when  the  total  is  to  be  posted  to  the  Cash  Sales 
account  in  the  general  ledger,  the  total  of  which  should 
balance  with  the  cash  sales  column  of  the  sales  sum- 
mary.    (See  407  and  form  No.  9). 

367.  Column — Cash  Discount.  In  this  column 
should  be  entered  all  discounts  allowed  customers.  No 
posting  except  the  total  at  the  end  of  the  month,  is  to 
be  made  from  this  column. 

368.  Column — General  Ledger  Debit.  This  column 
is  given  to  provide  for  any  cross  entries  or  deductions 
which  might  be  made  and  not  provided  for  in  the  cash 
discount  or  other  blank  column  at  the  right  of  it.  The 
amounts  in  this  column  are  to  be  posted  throughout  the 

252 


CASH    RECEIVED 


369-370 


month  or  in  case  there  may  be  numerous  expense  ac- 
counts, these  may  be  summarized  as  explained  in  397, 
and  their  totals  posted  at  the  end  of  the  month. 

Columns — Day,  From  Whom,  Particulars.  These 
are  apparently  self-explanatory. 

369.  Columns — Account  Number  and  Check  Mark. 
In  the  account  number  column  should  be  entered  the 
number  of  the  account  to  which  the  item  belongs  and 
when  the  item  is  posted  or  summarized,  a  check  mark 
should  be  made  in  the  narrow  column  with  the  check, 
mark  heading. 

370.  Column — ^Blank  Debit.  This  column  is  left 
blank  to  be  used  for  any  account  for  which  it  may  be 
required. 


253 


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254 


371.     CHECK  REGISTER— FORM  No.  2. 

This  form  is  to  be  used  for  recording  all  checks 
drawn  on  the  bank  and  takes  the  place  of  the  ordinary 
check  stub  book  and  cash  book  relating  to  disburse- 
ments. 

As  a  consequence  it  will  be  found  more  convenient 
to  have  checks  put  up  in  pads  instead  of  book  form,  each 
to  be  numbered  consecutively.  If  a  check  is  spoiled  by 
accident  or  otherwise,  its  number  should  be  recorded  in 
the  check  number  column  and  marked  "Void."  As  all 
postings  are  to  be  made  directly  from  this  form  to  the 
ledger,  it  not  only  saves  time  in  filling  out  check  stubs 
and  transferring  them  to  a  cash  book,  but  it  also  eliminates 
the  possibility  of  errors  in  so  doing. 

When  more  than  one  bank  account  is  kept,  separate 
check  register  sheets  should  be  kept  for  each  bank,  all 
carried  in  one  binder  but  separated  by  index  tabs  desig- 
nating the  name  of  each  bank.  This  allows  indefinite 
expansion  as  to  the  number  of  banks  and  is  much  more 
convenient  for  the  bookkeeper  than  using  several  check 

registers. 

This  form  separates  the  petty  cash  payments  from 
the  bank  disbursements,  showing  the  details  of  each 
transaction  and  daily  balance,  and  like  the  Cash  Received, 
form  No.  i,  makes  a  saving  of  fully  50%  in  time  and  space 
used. 

255 


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372-374 


ACCOUNTING    FORMS 


Columns — Bank  Account.  These  columns  show  at 
all  times  the  condition  of  the  bank  account,  the  total  of 
each  deposit  being  entered  in  the  deposit  column  from  the 
cash  received  record,  and  the  amount  of  each  check  in 
the  check  column  with  the  check  number  in  the  column  at 
the  left.  No  postings  except  the  totals  at  the  end  of  the 
month  less  the  balance  brought  forward  at  the  beginning 
of  the  month  are  to  be  made  from  these  columns. 

372.  Column — Accounts  Payable.  In  this  column 
should  be  entered  the  total  amount  to  be  charged  to  the 
creditor,  being  the  net  amount  paid,  plus  the  discount,  if 
any,  which  discount  should  be  entered  in  the  cash  dis- 
count column.  The  sum  of  the  amounts  thus  entered  in 
the  discount  column  and  the  check  column  will  then  bal- 
ance with  the  amount  entered  in  the  accounts  payable 
column.  When  ledger  accounts  are  carried  with  pur- 
chase creditors,  the  items  in  this  column  are  to  be  posted 
to  the  individual  accounts  of  the  creditors'  ledger,  other- 
wise the  payments  are  to  be  entered  in  the  proper  col- 
umns of  the  purchase  record,  form  No.  6,  as  described  in 
395.  The  total  of  this  column  at  the  close  of  the  month 
under  either  method,  is  to  be  posted  to  the  controlling 
account  in  the  general  ledger. 

373.  In  the  particulars  column  should  be  entered 
the  voucher  number  when  no  individual  accounts  are  kept 
with  purchase  creditors,  or  such  other  memorandum  as 
desired. 

374.  Column— General  Ledger.  The  items  in  this 
column  are  to  be  posted  or  summarized  throughout  the 
month  as  described  in  365  and  397. 

256 


CHECK  REGISTER 


375-377 


375.  Column — Expenses.  In  this  column  should  be 
entered  the  expenses  paid  directly  by  check  when  not  dis- 
tributed on  the  voucher  record.  (See  397  for  details  in 
posting  these  items). 

376.  Column — Cash  Discount  Earned.  In  this  col- 
umn should  be  entered  all  cash  discounts  earned  from 
discounting  purchase  invoices,  the  total  only,  of  which  is 
to  be  posted  at  the  close  of  the  month. 

377.  Column — General  Ledger  Credit.  This  column 
in  the  check  register  answers  a  similar  purpose  as  the 
general  ledger  debit  column  of  the  cash  received  record, 
providing  for  any  cross  entries.  If  the  accounts  in  this 
column  are  numerous,  they  may  be  summarized  through- 
out the  month  as  explained  in  397,  the  total  only,  of  each 
account  being  posted  at  the  close  of  the  month  in  one 
amount,  otherwise  the  individual  items  should  be  posted 
throughout  the  month. 


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Form  No.  3— (Size  of  original,  S%  x  ii54) 


258 


378.      IMPREST  CASH— FORM  No.  3. 

This  form  is  designed  to  provide  for  a  careful  and 
accurate  accounting  of  all  petty  cash  disbursements. 

As  mentioned  in  363,  all  cash  receipts  should  be 
deposited  daily  in  the  bank,  thus  making  necessary  the 
maintenance  of  a  petty  cash  fund  termed  "Imprest  Cash 
Fund,"  out  of  which  to  pay  miscellaneous  small  items 
which  are  not  practicable  to  pay  by  check.  The  method 
of  handling  this  class  of  disbursements  is  fully  described 
in  2y  and  therefore  will  not  be  repeated  here.  The  ad- 
vantages derived  from  this  method  are  as  follows: 

1st. — A  receipt  is  secured  for  every  petty  cash  ex- 
penditure, which  facilitates  a  thorough  audit  of  this  class 
of  disbursements. 

2nd. — The  balancing  of  petty  cash  is  simplified  on 
account  of  there  always  being  a  fixed  amount  against 
which  to  balance. 

3rd. — The  balancing  of  the  general  cash  is  also 
simplified  as  the  total  of  the  deposit  column  added  to  the 
checks  on  hand  undeposited,  if  any,  should  equal  the  total 
of  the  cash  received  column. 


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JOURNAL— FORM  No.  4. 


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This  form  is  designed  to  take  the  place  of  the  ordi- 
nary journal  and  when  used  in  conjunction  with  the  other 
forms  herewith  shown,  the  entries  to  be  made  on  it  will 
be  comparatively  few  in  number;  such  as  closing,  adjust- 
ing and  other  entries  not  provided  for  on  the  other  forms. 

The  items  entered  in  the  various  columns  on  this 
form  should  be  treated  in  a  similar  manner  as  described 
under  other  forms  containing  like  headings.  All  journal 
entries  should  be  supported  by  properly  approved  journal 
vouchers. 


261 


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ON  THE  VOUCHER  copy  APP^/tRS   THt    FOLLOW. NC  OaTA   wH-CH  DOtS   NOT  SHOW    ON  THt 
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DATE  E.NTtf?LD.PAaE;  DATE  paid;  BY  WHOM  CERTIFIED  AND  A  PPROVEft. 

Form  No.  5— (Si2e  of  original,  8^  x  9) 


262 


. 


380. 


VOUCHER  SYSTEM. 


The  voucher  system  comprises  an  "Accounts  Payable 
Voucher"  to  be  used  in  conjunction  with  a  "Voucher  Rec- 
ord," the  two  taking  the  place  of  a  purchase  creditors' 
ledger. 

The  Accounts  Payable  Voucher,  which  should  be 
ruled  to  meet  the  requirements  in  each  particular  case, 
should  show  the  distribution  charges  of  the  invoices  at- 
tached to  it,  and  the  details  of  accounts  with  the  purchase 
creditors,  while  the  Voucher  Record  constitutes  a  medium 
of  posting  and  distribution  of  the  accounts,  as  well  as  a 
record  of  the  accounts  with  purchase,  creditors.  This 
voucher  may  be  made  in  duplicate,  one  copy  constituting 
the  check  and  remittance  statement,  the  other  copy,  to 
which  the  invoices  should  be  attached,  being  a  copy  of 
the  check  and  remittance  letter,  also  showing  the  details 
of  the  distribution. 

381.  Form  No.  5  illustrates  a  labor-saving  voucher, 
the  use  of  which  is  described  as  follows:  As  soon  as 
invoices  from  a  purchase  creditor  are  approved  for  entry, 
they  should  be  attached  to  a  voucher,  on  which  at  that 
time  should  be  recorded  on  the  check  portion  only,  the 
name  of  the  creditor;  on  the  remittance  statement  por- 
tion, the  date  of  each  invoice  and  amount,  and  on  the 
voucher    copy    the    distribution    account    numbers    and 

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382-384  ACCOUNTING   FORMS 

amounts.  All  vouchers  should  then  be  filed  temporarily 
in  alphabetical  order  until  the  close  of  the  month  or  pay- 
ment date,  if  paid  before,  when  the  vouchers  should  be 
closed  and  entered  on  the  voucher  record.  The  entire 
purchases  for  a  month  from  any  one  creditor  should  be 
covered  by  one  voucher  unless  certain  bills,  to  save  the 
discount,  are  paid  during  the  month,  in  which  event  a 
separate  voucher  should  be  made  for  each  payment. 

382.  After  being  entered  on  the  voucher  record  in 
numerical  order,  they  should  be  filed  alphabetically  in  a 
file  marked  "Unpaid  Vouchers."  Each  voucher  should 
show  the  page  of  the  voucher  record  and  date  of  entry. 
To  provide  for  the  payment  of  bills  within  the  discount 
time  limit,  a  copy  may  be  filed  in  a  tickler  file  according 
to  the  date  of  payment,  and  when  vouchers  are  to  be  paid, 
both  original  and  duplicate  should  be  passed  to  the  proper 
officers  for  signatures  to  the  check,  at  which  time  invoices 
should  be  stamped  "Paid,"  thus  guarding  against  the 
duplicate  payment  of  same.  This  method  places  all  sup- 
porting papers  before  officers  who  sign  checks. 

383.  The  original  checks  with  remittance  state- 
ments are  then  ready  to  detach  and  mail,  the  dupHcates 
with  invoices  attached  to  be  permanently  filed  either 
numerically  or  alphabetically. 

384.  The  above  described  method  of  entering  all  of 
one  concern's  invoices  for  a  month  in  one  amount  on  the 
purchase  record  is  recommended  even  in  cases  where 
personal  accounts  are  carried  with  purchase  creditors, 
thus  requiring  only  one  credit  posting  during  the  month 
to  each  creditor's  account. 

264 


VOUCHER  SYSTEM 


385-386 


385.  General. 

It  is  to  be  recommended  that  the  distribution  of  all 
purchases,  expenses,  etc.,  be  made  on  the  purchase  record 
form,  instead  of  distributing  certain  items  on  the  check 
register  as  is  often  done,  and  even  provided  for  on  form 

No.  2. 

386.  In  cases  where  all  bills  are  paid  in  the  same 
month   that   they   are   received,   or  in  cases   where   the 
monthly    showing   of    such    items    and    the    liability   on 
account  of  the  unpaid  bills  is  unimportant,  the  distribu- 
tion may  be  made  directly  on  the  check  register,  but  in 
the  majority  of  instances  bills  are  not  all  paid  during  the 
month  in  which  they  were  received.    Therefore  in  order 
to  show  all  purchases  and  expenses  in  the  month  in  which 
they  were  actually  made,  whether  paid  or  not,  also  the 
liability  for  all  unpaid  accounts  at  the  close  of  the  month, 
all  disbursements  should  be  previously  vouchered,  entered 
and  distributed  on  the  purchase  or  voucher  record.    This 
method  results  in  a  uniformity  of  distribution  on  the  one 
form,  and  also  provides  for  all  disbursements  being  sup- 
ported by  properly  approved  vouchers. 


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387.  PURCHASE  RECORD— FORM  No.  6. 

This  form  may  be  used  either  as  a  voucher  record  in 
connection  with  the  voucher  system  when  individual 
ledger  accounts  are  not  kept  with  purchase  creditors,  or 
as  a  purchase  record  when  ledger  accounts  are  carried 
with  purchase  creditors.  When  applied  to  the  first 
method,  columns  have  been  provided  under  the  general 
heading,  "Voucher  Record,"  showing  the  voucher  or  in- 
voice number,  date  paid  and  check  number. 

388.  In  cases  where  purchase  invoices  are  promptly 
paid  in  full,  that  is,  without  making  partial  payments  on 
running  accounts,  the  author  suggests  that  they  be 
handled  under  the  first  method,  as  it  is  a  great  saving  of 
clerical  work,  and  when  used  in  conjunction  with  properly 
prepared  vouchers,  constitutes  a  safeguard  against  the 
duplicate  payment  of  invoices;  but  when  the  accounts 
with  purchase  creditors  are  very  numerous  of  long  stand- 
ing and  paid  by  instalments,  the  keeping  of  individual 
accounts  with  purchase  creditors  is  advisable.  The 
method  to  be  used  depends  upon  the  condition  in  each 
specific  case. 

389.  Particulars  as  to  the  preparation  and  payment 
of  vouchers  are  fully  described  under  the  caption, 
"Voucher  System/'  therefore  the  functions  of  this  form 
only  will  be  described  here. 

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390-393  ACCOUNTING   FORMS 

390.  Column— Accounts  Payable.  In  this  column 
should  be  entered  the  total  amount  of  the  voucher,  invoice 
or  group  of  invoices,  depending  upon  the  method  used, 
writhout  deducting  the  cash  discount,  as  provision  is  made 
in  the  check  register  for  the  discount  to  be  taken  at  the 
time  of  payment.  When  individual  accounts  are  carried 
with  purchase  creditors,  the  items  in  this  column  are  to  be 
posted  throughout  the  month  to  the  personal  accounts 
in  the  accounts  payable  ledger,  and  at  the  close  of  the 
month  the  total  of  the  column,  to  the  controlling  account 
in  the  general  ledger.  When  individual  accounts  are  not 
carried,  only  the  total  at  the  close  of  the  month  is  to  be 
posted  to  the  controlling  account. 

391.     Column— Freight.      See  188,  Incoming  Trans- 
portation Charges  Undistributed. 

In  this  column  should  be  entered  the  amount  of  the 
freight  relating  to  any  particular  purchase.  The  total  of 
the  column  at  the  close  of  the  month  is  to  be  posted  to 
the  credit  of  the  account,  "Transportation  Charges  Undis- 
tributed" in  the  general  ledger,  the  offset  or  debit  to  each 
freight  item  to  be  distributed  v^ith  the  invoice  to  the 
proper  account  whether  in  the  general  ledger  column  or 
in  the  column  headed,  "Items  Distributed."  All  payments 
of  transportation  charges  should  then  be  charged  against 
this  account,  the  balance  in  the  account  representing 
undisturbed  transportation  charges. 

392.  Column— General  Ledger.  The  items  in  this 
column  are  to  be  posted  or  summarized  throughout  the 
month  as  described  in  365  and  397. 

393,  Column — Items  Distributed.  In  this  column 
should  be  entered  the  amounts  to  be  distributed  to  the 

268 


PURCHASE   RECORD 


394-395 


various  accounts  on  the  distribution  summary,  form  No. 

7,  as  described  in  397. 

394.  Columns— Voucher  Record.  In  the  column. 
Voucher  or  Invoice  Number,  should  be  entered  the  num- 
ber of  each  voucher  when  the  voucher  system  is  used, 
otherwise    the    number    of    each    invoice    or    group    of 

invoices. 

395.  When  the  voucher  system  is  used,  the  payment 
of  each  voucher  should  be  indicated  by  entering  the  date 
of  payment  and  check  number  on  the  same  line  as  the 
voucher  number,  in  the  columns  headed,  "Date  Paid"  and 
"Check  Number/'  respectively.  This  need  not  be  done, 
however,  on  the  same  day  that  the  vouchers  were  actually 
paid,  as  it  will  be  found  more  convenient  to  make  these 
entries  on  the  voucher  record  at  certain  times  throughout 
the  month,  when  several  items  may  be  entered  at  one 
time  from  the  check  register.  The  total  of  the  items,  not 
marked  "Paid"  should  agree  with  the  Accounts  Payable 
account  in  the  general  ledger,  also  with  the  "Unpaid 
Vouchers"  file,  as  referred  to  in  382. 


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396.    DISTRITUTION  SUMMARY— FORM  No.  7. 

This  form  may  be  used  in  conjunction  with  all  forms 
here  shown,  but  particularly  with  the  Purchase  Record, 
form  No.  6,  and  Combined  Cash  Journal,  form  No.  8. 

397.     All  expenses  should  be  entered  in  the  expense 
column  of  forms  No.  2  and  No.  8  and  in  the  column 
"Items  to  be  Distributed"  in  form  No.  6  and  distributed 
on  the  distribution  summary.     For  illustration,  say  there 
were  ten  entries  to  the  account  No.  127,  Miscellaneous 
Expense,  fifteen  to  the  account  No.   130,  Postage;  the 
account  number  should  appear  in  the  "Account  Number" 
column  at  the  left,  in  each  instance.    In  summarizing,  one 
column  of  the  distribution  summary  would  be  headed  No. 
127,  another  No.  130  and  all  items  of  the  account  num- 
ber 127  would  be  recapped  in  the  column  headed  127,  and 
all  items  of  the  account  number  130,  in  column  headed 
130,  and  all  other  accounts  treated  in  like  manner.    Sub- 
headings may  be  made  in  columns  when  only  a  few  items 
for   a  certain  account  number  are   required,  thus   sum- 
marizing two  or  more  accounts  in  one  column ;  this  to  be 
done  and  verified  throughout  the  month  to  save  an  ac- 
cumulation of  work  at  the  close  of  the  month.     At  this 
time  the  total  of  each  expense  account  should  be  entered 
in  one  amount  in  the  expense  column,  of  the  form  from 
which  the  items  were  distributed,  in  order  that  only  one 

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ACCOUNTING    FORMS 


ledger  posting  of  each  account  may  be  required  for  the 
month,  although  it  may  be  composed  of  numerous  items. 
At  the  close  of  the  month  this  sheet  should  be  placed  in 
the  binder,  following  the  sheets  summarized,  and  for  con- 
venience in  locating  is  printed  on  different  colored  paper. 
The  advantages  of  this  method  are  as  follows: 

398.  1st — Allows  indefinite  expansion,  being  appli- 
cable to  almost  any  business. 

2nd — Saves  paper  and  time  in  distribution,  by  dis- 
placing the  ordinary,  cumbersome  voucher  record,  con- 
taining numerous  distribution  columns  and  so  inconven- 
ient to  handle. 

3rd — Saves  time  in  footing  and  forwarding  numer- 
ous columns  in  which  only  scattering  entries  are  made. 

4th — Reduces  ledger  postings,  additions  and  space, 
thus  reducing  the  possibility  of  error. 


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399.  COMBINED  CASH  JOURNAL 

FORM  No.  8. 

This  record,  which  is  especially  adapted  to  the 
smaller  business  houses,  is  designed  to  combine  all  the 
features  of  the  Cash  Received,  Check  Register,  Journal 
and  Purchase  Record  on  one  form.  This  form  may  be 
used  alone  or  in  conjunction  with  any  of  the  others  pro- 
viding for  numerous  entries  of  any  one  class. 

400.  Columns^Bank  Debit  and  Credit.    These  col- 
umns take  the  place  of  the  ordinary  check  stub  book  and 
cash  book  relating  to  bank  disbursements,  and  show  at  all 
times  the  condition  of  the  bank  account,  the  total  of  each 
deposit  being  entered  in  the  debit  column  and  the  amount 
of  each  check  in  the  credit  column,  with  the  check  num- 
ber in  the  column  at  the  left.    As  a  consequence  it  will  be 
found  more  convenient  to  have  checks  put  up  in  pads 
instead  of  book  form,  each  to  be  numbered  consecutively 
and  every  number  accounted  for  in  the  check  number  col- 
umn    If  a  check  is  spoiled  by  accident  or  otherwise  its 
number  should  be  recorded  and  marked  "Void."     As  the 
postings  are  made  directly  from  this  form  to  the  ledger, 
time  is  not  only  saved  in  filling  out  check  stubs  and  copy- 
ing from  them  to  the  cash  book,  but  the  possibility  of 
errors  in  so  doing  is  eliminated.    No  postings  except  the 
totals  at  the  end  of  the  month  less  the  balance  brought 

274 


COMBINED  CASH  JOURNAL 


401-403 


forward  at  the  beginning  of  the  month,  are  to  be  made 
from  these  columns. 

401.  Columns — Cash  Debit  and  Credit.  These  col- 
umns take  the  place  of  the  ordinary  cash  book,  the  net 
cash  received  being  entered  in  the  debit  column  and  the 
total  of  each  deposit  in  the  credit  column.  All  cash  re- 
ceived should  be  deposited  in  the  bank,  in  which  event 
these  columns  should  balance  when  the  day's  deposits 
have  been  made,  thus  facilitating  the  balancing  of  cash. 
Petty  cash  disbursements  should  be  handled  under  the 
"Imprest  System,"  as  described  in  27-378. 

When  this  system  is  not  used  such  disbursements 
should  be  entered  in  the  credit  column.  No  postings  ex- 
cept the  totals  at  the  end  of  the  month  are  to  be  made  from 
these  columns. 

402.  Columns  —  Accounts  Receivable  Debit  and 
Credit.  In  the  debit  column  should  be  entered  the  total 
charges  to  customers,  at  the  close  of  the  month,  from 
the  sales  summary.  (See  407.)  In  the  credit  column 
should  be  entered  the  total  amounts  to  be  credited  to 
customers  for  remittances  or  otherwise,  therefore  each 
amount  in  this  column  should  include  not  only  the  net 
cash  received  but  all  deductions  allowed. 

The  items  in  these  columns  are  to  be  posted  through- 
out the  month  to  the  individual  accounts  in  the  custom- 
ers' ledger  and  at  the  close  of  the  month  the  total  of  each 
column,  to  the  customers'  controlling  account  in  the  gen- 
eral ledger.     (See  24). 

403.  Columns — Cash    Discount    Debit    and   Credit. 

In  the  debit  column  should  be  entered  all  cash  discounts 
allowed  customers,  and  in  the  credit  column  all  cash  dis- 

275 


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404-405  ACCOUNTING   FORMS 

counts  taken  from  purchase  creditors.  The  totals  only 
of  these  columns  are  to  be  posted  at  the  close  of  the 
month. 

404.    Column^Accounts  Payable  Debit  and  Credit. 

In  the  debit  column  should  be  entered  the  total  amount 
to  be  charged  to  the  creditor,  being  the  net  amount  paid 
plus  the  discount,  if  any ;  and  in  the  credit  column,  all  credits 
to  purchase  creditors.  (The  "Voucher  Record"  columns 
shown  on  form  No.  6  should  be  provided  at  the  right  of 
the  credit  column  when  no  individual  accounts  are  carried 
with  purchase  creditors,  but  to  save  space  on  the  illustra- 
tion these  have  been  omitted). 

405.  Columns  —  General  Ledger,  Purchases,  Ex- 
penses and  Cash  Sales.  For  details  as  to  the  use  of  these 
columns,  see  instructions  accompanying  forms  i,  2  and  6, 
-Cash  Received,  Check  Register  and  Purchase  Record, 
respectively. 


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406.  SALES  SUMMARY— FORM  No.  9. 

This  form  is  to  be  used  for  summarizing  the  daily 
sales  and  costs,  when  the  sales  are  "cost  priced"  and  when 
several  departments  are  maintained.  The  cost  columns 
on  this  form  would  be  omitted  when  the  costs  are  not 
figured  on  sales.  This  form,  as  appHcable  to  a  retail  busi- 
ness, is  described  as  follows: 

407.  The  daily  sales  tickets,  showing  both  cost  and 
selling  price,  should  be  assembled  according  to  depart- 
ments and  footed  on  an  adding  machine,  the  departmental 
totals  only  to  be  entered  on  this  summary,  or  when  sales 
items  are  few  in  number  each  sales  ticket  may  be  entered. 
The  total  "Charge  Sales"  column  should  agree  with  the 
charge  binder  from  which  postings  are  made  to  the  indi- 
vidual accounts  of  the  customers'  ledger,  and  the  total 
"Cash  Sales"  column  should  agree  with  the  "Cash  Sales" 
column  in  the  cash  received  record.  At  the  close  of  the 
month  the  totals  of  these  various  columns  are  to  be 
transferred  to  the  journal  from  which  they  are  posted  to 
their  respective  accounts  in  the  general  ledger. 

408.  In  a  manufacturing  business  it  is  usually  cus- 
tomarv  to  show  each  charge  number  and  the  distribution 
on  the  summary. 

278 


SALES    SUMMARY 


409 


409.     Customers'  Credit  Memorandum  Summary. 

Goods  returned  or  allowances  to  be  made  for  which 
credit  memoranda  are  issued,  or  cash  refunded,  may  be 
summarized  in  red  ink  on  this  form;  or  a  sheet  headed 
"Credit  Memorandum  Summary"  may  be  provided  for 
that  purpose,  the  corresponding  totals  to  be  posted  at  the 
end  of  the  month  in  a  similar  manner  as  described  in  407. 


',  t 


279 


INDEX 


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INDEX 

A 

Ref.  No. 

Accounting  Forms   360-409 

Accounts    Payable   Voucher 3oi 

Cash  Received    361-370 

Check   Register    3/1-377 

Combined    Cash   Journal 399-40S 

Credit   Memorandum    Summary 409 

Distribution    Summary    39^39^ 

Imprest  Cash  Voucher 378 

Journal 379 

Purchase  Record  387-395 

Sales   Summary    ' 406-408 

Accounts  Payable 

Controlling  Account  of 86 

Ledger 86 

Purchase    Creditors    o" 

Sundry   Creditors    87 

Voucher   form    381 

Accounts  Receivable 

C.  O.  D.'s 250 

Controlling  Account  of ,..-23,24,25,38 

Customers 38 

Ledger 38 

Sundry   Debtors    40 

Reserve  for   ^^' it 

Accrued  Commissions 89 

Accrued  Items  Payable    90 

Accrued  Interest,  Items  Payable    91 

Accrued  Interest,  Items  Receivable    37 

Accrued  Pay  Rolls 88 

Accrued  Taxes 90 

Adm.inistrative  Expenses 26,  130,  190,  248 

Manufacturing   Proportion    26,  194 

Proportion  to  Other  Departments 221 

Selling    Proportion    247 

Adjustments  Affecting  Prior  Periods 1 1 1,  343.  355 

Advertising 

Expositions   232 

Literature 230 

Miscellaneous   ; 231 

Periodicals 229 

283 


>^ 


I 


m^' 


INDEX. 

Rcf.  No. 
Alterations  and  Improvements 

Account    256 

Extinguishment  of  271 

Annual  Report  (See  Financial  Statements). 

Analysis  of 

Expenses    22 

Fixed  Asset  Accounts 59 

Purchases 396, 39^ 

Arrangement  of  Accounts 

Balance  Sheet 5.  I3»  342,  345,  353,  354 

Chart  of  Accounts i7>  26, 248 

Ledger 19 

Profit  and  Loss  Statement 14,  15,  344»  347.  356,  358 

Assets 

On  Balance  Sheet 342,  345,  353,  354 

Chart    of    26,    248 

Current    7.  n.  26,  248 

Fixed   7.  n.  26,  248 

Intangible 7,  n.  26,  248 

Nominal  7,  u.  26,  248 

Permanent 7»  n,  26,  248 

Quick 7,  II,  26,  248 

Authorized  Capital  Stock 95,  96 

Automobiles 

Account   7^*   76 

Depreciation  and  Reserve 60,  61,  173,  193,  211 

Insurance  on    I74 

Proportion  to  departments 

Administrative   243 

Factory    I75 

Selling    275 

Repairs  to 172,  210 

Supplies  and  Expense  171 

Wages — Chauffeurs    170 

B 

Bad  Accounts 

Reserve  for   39t  41 

Reserve  Charge  218 

Balance  Sheet 

Arrangement  of  Accounts  of 5,  I3 

Definition   of    3 

Illustrations  of 342,  345,  353,  354 

Instructions  for  Preparing   340,  351 

Balance,  Trial   4 

Bank  Account   30 

Reconciliation   of    3i 

Betterments    59 

Bills  Payable 84,  85 

Bills  Receivable   34 

Bills  Receivable  Discounted  35 

284 


INDEX. 

Ref.  No. 

Bonds 

Accounts    32,   93 

Register 32,  93 

Books  (see  Accounting  Forms). 

Branch  Offices 

Accounts  with    II9 

Furniture  and  Fixtures    7° 

Buildings  and  Building  Fixtures 

Account    /L^'i"   * 

Depreciation  and  Reserve  for 60,  61,  I93 

Repairs  to    ^56,  270 

Burden  (see  Manufacturing  Expenses). 

By-Products    309 


Cancelled   Stock  Certificates    94 

Capital 26,  94,  248 

Account  of  Partner  I03 

Account  of  Proprietor   i^i 

Working,   Reserve  for    1^9 

Capital  Stock   12,  94 

Certificate   Book    94 

Common  Authorized   90 

Common    Unissued    9° 

Issued    94 

Journal    94 

Ledger    94 

Preferred  Authorized    95 

Preferred  Unissued    97 

Subscribed    99 

Subscriptions  to    i^o 

Transferred    94 

Cartage   44 

Cash 

In   Banks    30 

Discounts   Allowed    Others    132 

Discounts    Earned    l^i 

Imprest    Fund    ^7 

On    Hand    29 

Over  and   Short    219 

Petty    ....27 

Received  Record,  Form  of 361-370 

Sales    "I 

Cashier's  Change  Fund   28 

Charities  and  Donations   212 

Changing  Books  from  Single  to  Double  Entry 31 5 

Chart  of  Accounts   '7 

Manufacturing   Companies    26 

Mercantile  Companies 248 

Check  Register,  Form  of 371-377 

Classification  of  Accounts  W"l^ 

Clerks,  Salaries  of   •■228,  263 

Closing  Entries  m,  3i7,  318,  341,  352 


285 


h  . 


iill^ 


h 


U  ! 


K 


INDEX. 

Ref .  No. 

C.  O.  D.  Accounts  250 

Combined  Cash  Journal  and  Bank  Account,  Form  of 399-405 

Commercial  Agency  Subscriptions  240 

Commercial   Expenses    15 

Commissions 

Accrued    89 

Traveling   Salesmen's    224 

Common  Stock  (see  Capital  Stock). 

Comparison  of  Accounts  Msmuf acturing  and  Mercantile  Co's .  249 

Consigned  Merchandise   128 

Consignments  to  Others   42 

Construction  and  Maintensmce  Orders 59,  306 

Contingent  Liabilities   35 

Controlling  Accounts  23,  24,  25,  38,  86 

Corporation,  Definition  of  (see  Capital  Stock) 94 

Cost  Accounting,  Principles  of 276-310 

Cost  Finding,  Methods  of   303 

Process   Method    308 

Production  Order  Method    304 

Cost  Ledger   307 

Cost  of  Doing  Business,  Percentage  of 344,  347,  356,  358,  359 

Cost  of  Product  Manufactured 127 

Cost  of  Sales 15,  129,  260,  344,  356 

Cost  System,  Importance  of 276 

Costs  Manufacturing,  Elements  of 278 

Credit   Memorandum  Summary    409 

Cumulative  Dividends,  Preferred  Stock 105 

Current  Assets  7»   1 1»  26,  248 

Current  Liabilities  8,  12,  26,  248 

Customers*  Accounts  24,  38 


Deferred  Charges  to  Operation 7,  11,  26,  52,  248 

Deficit 12,  no 

Defective  Material,  Replacements  of 186 

Departmental  Supplies    272 

Depreciation,  Reserve  Charge  and  Reserve  for 60,  61,  193 

Automobiles,  Factory   60,  61,   173 

Automobiles,  Main  Office  60,  61,  193 

Buildings  and  Building  Fixtures 60,  61,  193 

Drawings    60,  61,  193 

Entries    349 

Factory  Fixtures 60,  61,  193 

Machinery  and  Machine  Tools   60,  61,  193 

Manufacturing  Material  and  Work  in  Process 48 

Merchandise  Stocks .254 

Office  Furniture  and  Fixtures 

Branch    Office    60,  61,  193 

Factory  60,  61,  193 

Main   Office    60,  61,  193,  209 

Selling  Department 60,  61,  193.  241 

Patterns    60,  61,  74.   I93 

Perishable  Tools    70 

286 


OB 


fBti 


INDEX. 

Ref.  No. 

Power  Plant    60,  61,    i93 

Rates    of    V;*    "^^ 

Stable  Equipment 60,  61,  167 

Store  Furniture  and  Fixtures 60,  61,  241 

Designers  and  Draftsmen,  Salaries  of 138 

Direct  Charges  to  Manufacturing 27S 

Direct  Expenses    ^95 

Direct  Labor  125,  284 

Direct  Material    279 

Directors'  Fees  and  Expenses ^99 

Dscounted  Notes  Receivable •■ 35 

Discounts 

Allowed    ^^^ 

Earned    ^^i 

On   Bonds    ^^Z 

On  Treasury  Stock   32b 

Distribution  of  Expenses 

Department  Store,  Illustrated   •  •  .34o 

Manufacturing  Overhead  to  Departments.  .294,  295,  296,  359 

Manufacturing  Overhead  to  Cost  Sheets 297 

Methods  of 

Direct   Labor    298 

Direct   Labor,   Hours    299 

Direct  Labor  and   Material    30o 

Machine  Hour   •  •  30i 

Distribution  Summary,  Form  of 396-398 

Dividends  , 

Common  Stock   ^^^ 

Preferred   Stock    io5 

Stock 107 

Donated  Stock  325 

Doubtful  Accounts 

Reserve    Charge    210 

Reserve  for   39,  4i 

Drafting  Supplies   ^9^ 

E 

Earnings,   Miscellaneous    ^23 

Electric  Current    ^5o 

Elements  of  Manufacturing  Cost  ^7^ 

Elevator  Wages  and  Expenses  266 

Entertainment    227 

Entries,  Miscellaneous 

Adjustment  of    Partners'   Capital  Accounts 343 

Adjustment  of  Surplus  Account  355 

Bonds  Soldi  at   Discount    327 

Bonds  Sold  with  Common  Stock  given  as  bonus 327 

Capital  Stock  Decreased   330 

Capital  Stock  Increased  •  •  •  • 335 

Changing  Books  from  Single  to  Double  Entry 3^5 

Closing  Ledger  "i,  3^7,  3i8,  341,  352 

Depreciation,  Charge  and  Reserve  for  349 

Dissolution  of  Partnership   337 

287 


i! 


INDEX. 

Ref .  No. 

Opening  Books— Corporation  (see  331  to  335). -320,  321,  322 

Opening  Books — Individual    3ii 

Opening  Books— Partnership    312,  313 

Stock  Donated   by   Incorporators    325 

Stock  Issued  in  Payment  of  Plant   Purchased   324 

Stock  Issued  in  Payment  of  Promotion  Expenses   328 

Stock  Issued  for  Cash    323 

Stock  Sold  at  Premium   329 

Stock  Sold  on   Instalment   Plan 332-334 

Stock  Taken  Back  in  Settlement  of  Debt  of  Stockholders. 331 

Treasury  Stock  Sold  at  Discount    326 

Treasury  Stock  Sold  at  Premium    330 

Establishment  of  Selling  Prices 310 

Executive  Officers 

Expenses  of   ^9° 

Salaries   of    ^97 

Expenses 

Accrued    V  '  *  ^ 

Administrative    26,   130,  190,  248 

Commercial     ^5 

Direct    295 

Indirect    • •  •  -^^o 

Manufacturing  Overhead    126,   130,   293 

Manufacturing  Companies ^^*    « 

Mercantile    Companies    ....248 

Organization     °3.    I35 

Prepaid -7,  53,  50,  57- 

Selling   26,  131,  222,  248 

Expense  Accounts,  Chart  of 

Manufacturing    Companies    26 

Mercantile    Companies    248 

Expense  Analysis  Record   22 

Expenses,  Distribution  of 

Department   Store,    Illustrated    ■•348 

Manufacturing  Overhead  to  Departments. .  .294,  295,  296,  359 
Manufacturing  Overhead  to  Cost  Sheets 297 

Methods  of 

Direct  Hours    299 

Direct  Labor    298 

Direct  Material    300 

Machine  Hour   30i 

Experimental  Work •  • • ^^3 

Extinguishment  of  Alterations  and  Improvements 271 

Extinguishment  of  Organization  Expense   i3S 

Extinguishment  of  Patents I34,  349 

F 

Factory  Accounting  Employees,  Salary  of I39 

Factory  Fixtures 

Account    <"  V  ' 

Depreciation  and  Reserve 00,  Oi,  193 

Repairs    to    ^59 

Factory  Ledger   21,  302 

288 


I 


INDEX. 

Ref.  No. 

Factory  Supplies   Used    ™ 

Feed  and  Bedding   • ^^ 

Financial  Statements,  lUustrated  Forms  of  ,,«,.« 

Balance  Sheet    ^^    Iac 

Corporation— Department  Store   V,"  ,cx 

Corporation — Manufacturing   353-  354 

Partnership — Retail    ^^^ 

Distribution  of  Expenses  ^ 

Department   Store    34o 

Manufacturing    359 

Inventories,   Schedule  of   340 

Profit  and  Loss  Statement 

Department   Store    347 

Manufacturing  with  cost  system 35o 

Manufacturing  without  cost  system 35o 

Retail    344 

Working  Sheet— Manufacturing 35o,  35i 

Working  Sheet— Mercantile   339,  34" 

Finished  Product  ^ 

Inventories    j*^ 

Fixe^ssew;:;::::::::::::::*:"^^-''*";--:-*---^^ 

Fixed  LiabiUties .....,.; V  ^    8   12 

Floating   Assets   and   Liabihties 7,  ^i'  ^'  *^ 

Freight  ;:;i^ 

Fuel   ^^ 

Fund  28 

Cashier's   Change    

Imprest    Cash    

Sinking    

Furniture  and  Fixtures 

Branch  Office  g 

Account    *<^'  *  kV  ^1t 

Depreciation  and  Reserve   00,  Oi,  241 

Repairs  to 

Factory  -- 

Account      ^*  Vt'  *  xn^ 

Depreciation  and  Reserve  «>,  01,  i93 

Repairs  to   

Main  Office  y- 

Account     A^'kJ'  4on 

Depreciation  and  Reserve '208 

Repairs   to    

Store  2K^ 

Account    /U  *At  *  o^T 

Depreciation  and  Reserve '270 

Repairs  to   

^  151 

Gas  • 20 

General  Ledger  o^ 

Good  Will   ...•• •• ?: 

Gross  Profits  (see  Financial  Statement) ^5 

289 


^:i 


n  ." 


'N 


I 


i     '. 
I        . 


INDEX. 

Ref.  No. 

Gross  Sales  (see  Financial  Statement) 15 

Grounds 

Account   63 

Repairs  and  Upkeep   15s 

H 
Heat,  Light  and  Power 

Electric    Current    150 

Fuel    149 

Gas    151 

Labor    148 

Proportion — Administrative    Department    207,    261 

Proportion — Manufacturing    Department    153 

Proportion — Selling  Departments   235,  265 

I 

Imprest  Cash 

Fund    27,   378 

Voucher   form    378 

Improvements  and  Alterations 

Account    256 

Extinguishment    of    271 

Incidental  Expenses 

Administrative    220 

Selling   246 

Income  and  Expense  Statement  15 

Income  on  Sinking  Fund  Investments  79 

Incoming  Transportation  Charges — Undistributed 44,  188 

Indemnity  Bonds 

Executive  Officers  and  Office  Employees 214 

Salesmen    226 

Indirect  Charges  to  Manufacturing  278 

Indirect .  Manufacturing   Expenses    296 

Indirect  Manufacturing  Labor 26,  284 

Indirect  Manufacturing   Labor — Miscellaneous 147 

Indirect  Manufacturing  Material  279 

Insurance 

Automobiles     174 

Fire,  on  Main  Office  Furniture  and  Fixtures 215 

Fire,  on  Merchandise  Stocks,  Buildings,  and   Building 

Fxtures    268 

Fire,  on  Plant  and  Stock  178 

Liability — Manufacturing    179 

Liability — Mercantile    267 

Prepaid    54 

Stable    Equipment    168 

Intangible  Assets 7,  11,  26,  248 

Interest 

Accrued    Items    Payable    91 

Accrued  Items   Receivable    37 

Earned    122 

On  Items  Payable   133 

On  Investment    195 

290 


f 

i 


J 


INDEX. 

Ref.  No. 
Inventories 

Department  Store   253,  346 

Finished   Product    46 

Perpetual   280 

Manufacturing    Material    44 

Merchandise,    Branches    43 

Merchandise  Warehouse    252 

Pricing  of   251 

Schedule    of    ^ 346 

Semi-finished    Product    45 

Work  in  Process   47 

Investment  Account 

Proprietor    loi 

Partners    103 

Sinking   Fund     79 

Items  Payable,  Accrued    90 

Items  Receivable,  Prepaid   52 

Journal 

Form  of   379 

Vouchers    379 

Stock   94 

L 

Labor 

Direct    125,    284 

Indirect   26,  284 

Heat,  Light  and  Power 148 

Shipping  244 

Land  (see  Grounds). 

Ledgers 

Accounts    Payable    86 

Accounts    Receivable    38 

Branch    119 

Closing  of Ill,  317,  318,  341,  352 

Classification   of  Accounts   of 19 

Cost  307 

Factory    21,    302 

General 20 

Private    20 

Stock   94 

Subsidiary    38,  86,  21,  94 

Legal  Expenses 217 

Liabilities 

On  Balance  Sheet  342,  345,  353,  354 

Chart  of   26,  248 

Current   8,  12,  26,  248 

Fixed 8,  12,  26,  248 

Floating 8,  12,  26,  248 

Loans,  Notes  Payable   84 

Lost   Time    184 

291 


1  , 


INDEX. 

Rcf.  No. 

.2 

Loss,  Net    • :  V  * '  *  \ 

Loss  and  Gain  (see  Profit  and  Loss). 

M 

Machinery  and  Machine  Tools 

Account    • • k^'  Vt  '  in^ 

Depreciation  Charge  and  Reserve  for .-W),  oi,  i93 

Repairs  and  Replacements  of    A^ 

Main  Office  Employees,  Salaries  of ^"" 

Main  Office  Furniture  and  Fixtures  ^^ 

Depreciation 'charge 'and  'Reserve  for 60,  61,  209 

Repairs    to     26    lU 

Maintenance  Accounts ^'   ^^ 

Manufactured  Product,  Cost  of   '' 

Manufacturing  Costs  ^78 

Elements   of    

Manufacturing   Expenses  ...126 

Account    '26 

Chart    of    *  j^g 

Description  of    _ 

Definition  of  ^^^ 

Miscellaneous    

Manufacturing  Material  ^79 

Direct    279 

Indirect    ^ 

Inventory 124 

Purchases    "  '  ^^i 

Received    282 

Requisitions    •_•  •; • .0 

Reserve   for  Depreciation  of i'/.iis 

Sales  of   jge 

Spoiled  or  Scrapped • "  *  *  *  '^g^ 

ManufacSind  Mercantiie  Accounts, 'Compa'rlson' of  .'249;  277 

Manufacturing  Order    . . . ...  •••  —  •••• '^.i 

Manufacturing  Overhead  Undistributed   49 

Material  (see  Manufacturing  Material). 

Merchandise  J28 

Consigned    

Inventory  .^ 

Branches '.  i's's*, '  346 

Departments    ^^•^'  ^^S 

Schedule   of    ^^3 

Warehouse ! !  .259 

Purchases    *  *  * '  3^3 

tales,  cos't'of : :  i ! ! ! '. ! !  ] ! !  1 .'  1 ! !  i  •' '. "  ^" ^ ^5,'  iVg/ifc,'  "m'sse 

Method?of  D'isiributing  '6'verhe'ad  Expenses 

To  Departments 294,  295,  290,  i^o,  ^^y 

To   Cost  Sheets    208 

Direct  Labor    ^ 

Direct  Labor,  Hours  ^^ 

292 


INDEX. 

Rcf.  No. 

Direct  Labor  and    Material    300 

Machine  Hour   301 

Miscellaneous   Sales    117 

Miscellaneous  Earnings   123 

Mortgages 

Payable    92 

Payable    Registen' , 92 

Receivable    33 

Receivable    Register    33 

N 

Net  Loss 2 

Net  Profit  (see  Financial  Statements)    2,  15 

Net  Sales   (see  Financial  Statements) IS 

Net  Worth  (see  Financial  Statements)   i,  9,  26,  248 

New   Construction   59 

Nominal  Assets   7>  1 1.  '^^  248 

Non-Productive  Labor  (see  Indirect  Labor). 
Notes  Payable 

Loans    84 

Purchase   Creditors    85 

Register    814 

Notes  Receivable 

Account    34 

Discounted    35 

Register    34 

Numbering  Accounts   18,  2(i,  248 

O 

Office  Employees,  Salaries  of 

Administrative   Department    200 

Manufacturing   Department    i39 

Selling    Department    236 

Officers  Executive,  Salaries  of I97 

Office  Furniture  and  Fixtures  (see  Furniture  and  Fixtures). 

Office  Supplies  and  Expense  (see  Stationery  and  Printing). 

Oil,  Waste  and  Packing 181 

Opening  Entries 

Changing  Books  from  Single  to  Double  Entry 319 

Corporation   320-337 

Individual  Ownership 3" 

Partnership    312,  313 

Operating  Expenses  (see  Manufacturing  Expenses). 

Orders 

Construction   3©^ 

Maintenance    306 

Manufacturing    305 

Material    282 

Process  308 

Production    30S 

Stores    282 

Organization  Expenses 

Account 83 


I 


m 


INDEX. 

Ref .  No. 

Extinguishment    of    ^^ 

Other  Investments  

Outgoing  Shipments 

Automobile  Expense,  proportion   ^4J 

Stable  Expense,  proportion   243 

Transportation  Charges  on  ^^ 

Overhead  (see  Manufacturing  Expenses) 

P 

Partners'  Accounts 

Capital  or  Investment    J"^ 

Private   or   Drawing    ^ 

Patents  gj 

Account    ■ 

Extinguishment  of   ^^ 

Patterns  and  Drawings 

Account    • '^"Ar'^ATn^ 

Depreciation  of  and  Reserve  for  60,  61,  74,  I93 

Repairs    to    ■''•'.■'• i^i 

Pattern  Makers,  Salaries  of ^^ 

Pay  Rolls,  Accrued  ; •  •  •  •  •  • ' "  '''o  '  Icn 

Percentages,  Cost  of  Doing  Busmess 344,  347,  35o,  35»,  359 

Perishable  Tools 

Account    • (.f. 

Depreciation  of  and  Reserve  for  • /^ 

Repairs  and  Replacements  of :"r\"ofi^^^ 

Permanent  Assets 7,  ",20,  240 

Perpetual  Inventory    

Petty    Cash    -g 

Plant  Accounts   ^ 

Postage  ...203 

General    2^8 

Selling  Department   -^ 

Power  Plant  55 

Dep'Jeciation* of,' and  Reserve  for   60,  61,  i93 

Repairs  to   : ' ', "  o"  *  i  \ 

Preferred  Stock  (see  Capital  Stock). 

Prepaid  Expenses 7,  53,  bo,  ^/ 

Prepaid  Insurance    . . ......  ....••  •  •  •  • t^ 

Prepaid  Stationery  and  Office  Supplies ^55 

Pricing  Inventories   ; 276U10 

Principles  of  Cost  Accounting  ^20 

Private   Ledger    io2,"io4 

Private   Accounts    '•■"•■"■: -,08 

Process  Method  of  Cost  Finding —  •  3oo 

Production  Order  Method  of  Cost  Finding  304,  305 

Productive  Labor  (see  Direct  Labor). 

Profits  (see  Financial  Statements).  ^^ 

S'"^  ^ ;.v.*.v.v.v.v.*.v.v.v.v.2, '  15 

Net    

Profit  and  Loss  ^^ 

Accounts   

294 


INDEX. 


Ref.  No. 

Costs    26,  248,  257 

Revenues    26,  248,  257 

Single  Entry 316 

Statement 

Arrangement  of  Accounts 14,  15 

Definition    of    14 

Illustrations  of  344,  347,  356,  35B 

Proprietor's  Accounts 

Capital  or  Investment loi 

Private  or  Drawing  102 

Purchases 

Manufacturing  Material 124 

Merchandise    259 

Purchase  Creditors  86 

Purchase  Record    387-395 

Q 

Quick  Assets 7,  11,  26,  248 

R 

Rates  of  Depreciation    61 

Real   Estate    63 

Receipts  and  Disbursements,  Statement  of 15 

Reconciliation  of  Bank  Account 31 

Rent  and  Interest  Charges  on  Investment 195 

Rent  Earned    120 

Rent  Factory   proportion    176 

Rent  Office    proportion    206 

Rent  Selling  Dept  proportion   234 

Register 

Bond 32.    93 

Check   37^-377 

C.   O.   D 250 

Dividend    106 

Mortgages  Payable    92 

Mortgages  Receivable    33 

Notes  Payable    84 

Notes  Receivable    34 

Order 305 

Purchase    387-395 

Voucher    387-395 

Repair  Accounts  154 

Repairs  to 

Automobiles — Factory    Department    172 

Automobiles — Administrative   Department    210 

Buildings  and  Building  Fixtures  156,  270 

Factory    Fixtures    159 

Factory  Stock   187 

Grounds    155 

Machinery  and  Machine  Tools   158 

Office  Furniture  and  Fixtures — Factory  162 

Office  Furniture  and  Fixtures — Main  Office 208 

Patterns    161 


295 


«(> 


r  I 


I 


,1 


r 

I 


157 
166 


INDEX. 

Rcf.  No. 

Perishable    Tools    ^^o 

Power  Plant  

Stable    Equipment    

Store  Furniture  and  Fixtures   270 

Replacements,  Defective  Material    186 

Replacements,  Merchandise   Gratis    233 

Reports  (see  Financial  Statements). 

Requisition  for  Manufacturing  Material 282 

Reserves  ,        ^  j 

for  Depreciation  of  Fixed  Assets  (see  Depreciation  and 

Reserve). 

for  Doubtful  Accounts  Receivable,  Customers 39 

for  Doubtful  Accounts  Receivable,  Sundry  Debtors 41 

for  Doubtful  Notes 30 

for  Sinking    Fund    ^^S 

for  Working  Capital   1^9 


Secret 


62 


119 
121 
122 
123 
120 

112 


Returned  Ssdes    ^5,   112,258 

Returned  Purchases    ^24,  259 

Revenues  from 

Branches    

Cash  Discounts   

Interest   

Miscellaneous     

Rents    

Sales  of 

Finished   Product   

Manufacturing    Material    1^5 

Merchandise    ^5° 

5crap    ^^" 

Semi-finished  Product  ^M 

s 

^^"^'^^trlfs    --8,   263 

Designers   and   Draftsmen    138 

Executive   Officers    ^97 

Miscellaneous    201,  204 

Office  Employees 

Administrative   Department    

Manufacturing   Department    

Selling  Department   

Pattern  Makers   

Storekeepers   

Superintendents   and   Foremen    i37 

Traveling  Salesmen   223 

Sales  _-Q 

Cash  "^ 

Cost  of' ^5,  129,260,344 

Finished    Product    ■ ^^ 

Gross  (see  Financial  Statements)    i5 

Manufacturing  Material   "5 

Merchandise,  by  Departments 250 

296 


200 

.139 
.236 

.141 
.140 


INDEX. 


Rcf.  No. 

Miscellaneous   117 

Net   15 

Returned    15,   112,  258 

Scrap    116 

Semi-finished    Product    114 

Summary,  form  of 406-408 

Secret   Reserve    62 

Selling  Expenses   26,  131,  222,  248 

Selling  Prices,  Establishment  of   310 

Semi-tinished  Product 

Inventory   45 

Sales  of    114 

Shipping  Labor    244 

Shipping  Supplies  and  Expense   ^ 245 

Single  Entry,  Changing  to  Double  Entry 315 

Sinking  Fund 

Account    79 

Income  from    79 

Investments   of    108 

Reserve   for    108 

Spoiled  Material  185 

Stable 

Depreciation  and  Reserve  for 60,  61,  167,  193 

Equipment   7^ 

Expenses    26,   248 

Expense  proportion  • 

Administrative  Department 262 

Manufacturing   Department    169 

Selling  Department   274 

Feed  and  Bedding   165 

Insurance  168 

Repairs    166 

Supplies  and  Expense  164 

Wages,    Drivers    163 

Stable  and  Auto  Expense,  Proportion 

Incoming    Merchandise    262 

Outgoing  Shipments    243 

Selling  Department 274,  275 

Statements 

Assets  and  Liabilities   342,  345,  353,  354 

Expense    Distribution    348,  359 

Financial     338-359 

Income  and  Expense   15 

Profit  and  Loss 14,  I5,  344»  347»  356,  358 

Receipts  and  Disbursements    15 

Surplus    355 

Stationery,  Printing  and  Office  Supplies 

Administrative   Department    202 

Manufacturing   Department    190 

Selling   Department   237 

Stocks  and  Bonds  of  Other  Companies  32 

Stock 

Capital  (see  Capital  Stock). 

297 


H 


m 


INDEX. 

Rcf.  No. 

•Certificate    Book    ^^ 

Dividend ^°7 

Journal    ^4 

Ledger    94 

Merchandise  (see  Inventories). 

Records ^80 

Store  Furniture  and  Fixtures 

Account    V  "J'  '^^^ 

Depreciation  and!  Reserve  for 6o,  oi,  I93 

Repairs  to    ^7© 

Storekeepers,  Salaries  of  ^4© 

Stores  Orders  for  Material  ^82 

Subscribed  Capital  Stock 99 

Subscriptions  to  Capital  Stock W'o^^^ 

Subsidiary  Ledgers 21,  38,  86,  94 

Summary  „ 

Distribution   Form    390-398 

of   Sales    406-408 

Sundry  Creditors   °7 

Sundry  Debtors  40 

Superintendents  and  Foremen,  Salaries  of i37 

Supplies 

Automobile    ^^ 

Departmental    ^72 

Drafting    ]^ 

Factory   ™ 

Heat,  Light  and  Power ^52 

Office 

Administrative   Department    202 

Factory    ^90 

Selling  Department    237 

Shipping    ^45 

Stable  ^"4 

Surplus  ....';; 12,  no,  355 

T 

"^^"^ecrued ^o 

Merchandise  Stocks,  Buildings  and  Buildmg  Fixtures...  269 

Plant  and  Stock   ^77 

State  and   Federal    ^lO 

Telephone  and  Telegraph 

Administrative  Department  proportion    204 

Manufacturing  Department  proportion    189 

Selling   Department   proportion    239 

Time    Tickets    rw.'-W ^^ 

Tools,  small  (see  Perishable  Tools). 

Trading   Account    • : ^^^ 

Transferring  Property  of  Partnership  to  Corporation 324 

Transfer  Slips    ^^^ 

Transportation  Charges  ..     tQa 

Incoming,   Undistributed    44,    188 

Outgoing    Shipments    ^42 

298 


INDEX. 

Rcf.  No. 

Traveling  Expenses 

Other  than  Selling 213 

Traveling  Salesmen   225 

Traveling  Salesmen 

Accounts    with    40 

Commissions  of 224 

Expenses  of   225 

Salaries    of    ^^3 

Treasury  Stock 

Common    51 

Preferred    50 

Trial  Balance    4,  339»  35o 

U 

Undistributed  Manufacturing  Overhead    49 

Unissued  Capital  Stock   97,   98 

V 

Voucher  Checks    W'^^^ 

Voucher  Record,   form    of    ^S^"^?? 

Voucher  System    380-386 

Vouchers   Payable    80 

W 

\^a&res 

Carpenters,   Painters  and  Millwrights    I44 

Chauffeurs   ^70 

Drivers ^^ 

Elevator  Operators    260 

Inspectors    ^43 

Sweepers   and   Cleaners    140 

Tool    Makers    142 

Truckers    M5 

Wages,  Method  of  Paying 286 

Bonus    Rate    Plan    291 

Day  Rate  Plan    287 

Differential  Rate  Plan    289 

Piece  Work  Plan    288 

Premium  Rate  Plan  290 

Profit   Sharing   Plan    292 

Water    ^^2 

Water  and  Ice  ^5 

Working   Capital    ^09 

Working  Sheet 

Mercantile   Companies    339 

Manufacturing   Companies    350 

Work  in  Process,  Inventory  of 47 


299 


) 


m'' 


m 

w 


*1l 


TOI.KDO   I.KSAX.    MBWB 
rBIMTBRB.   TOI.BOO.  O 


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TITLE 


